Global Crossing Leans on Loans
Global Crossing Holdings Ltd. (Nasdaq: GLBCE) tipped its cap to two important investors this week. The formerly bankrupt carrier pinned down a $100 million loan from its current guardian, and then saw significant investor Carlos Slim make plans to boost his stake, a move that hiked up the share price yesterday (see Global Crossing Gets $100M Loan).
The bridging loan from majority owner Singapore Technologies Telemedia Pte. Ltd. (STT) was not unexpected. The operator said back in February it would need about $100 million to see it through to the end of 2004, but at that time it wasn't sure how it would raise the money (see Viatel Grabs $60M, Aims to Cut Bull).
Recent events probably narrowed its options. Global Crossing emerged from Chapter 11 protection in December, returned to the stock market in January, and said it would restate its 2002 and 2003 financials in April. That in turn led to a delisting notice from the Nasdaq (see Global Crossing to Restate Financials, Global Crossing Emerges From Chap 11, Global Crossing Stock Begins Trading, and Global Crossing Faces Delisting).
The carrier is quick to play down the severity of its restatement exercise. Phil Metcalf, managing director of Global Crossing Europe, says the operator "discovered the discrepancy when we were preparing the first quarter's results," and that the problem relates to access cost expenses totaling no more than $80 million.
Global Crossing spends nearly $2 billion a year on access-related charges, says Metcalf, so the error amounts to just a few percent, and will result in a non-cash charge.
Metcalf adds that market conditions are not being made any easier by the still large number of players competing for wholesale and enterprise VPN business. "The market needs some consolidation, as there aren't too many dropping out." Apart from Global Crossing's recent emergence from bankruptcy protection, MCI (Nasdaq: WCOEQ, MCWEQ) has clawed its way back into the market, and even Viatel Holding (Bermuda) Ltd. (OTC: VTLAF) has raised some new funding (see MCI Europe to Invest in Ethernet and Viatel Completes $52M Round).
Given all that, perhaps it's not surprising that it was STT, which acquired Global Crossing during the carrier's Chapter 11 period, that dished up the required cash, though in the form of a bridging loan.
With the loan, the carrier can borrow up to $100 million for operational costs during the next few months, but it must repay the money by the end of the year. STT has first dibs on any cash raised from asset sales or from any debt notes being issued.
All of which makes Global Crossing sound like a company that investors might cross the road to avoid. Except one. Having built up a healthy 9.1 percent stake in the operator by late March, Mexican business heavyweight Carlos Slim, who controls Teléfonos de México, wants to increase that stake to up to 20 percent (see Slim Picking at Global Crossing).
Slim makes his buy as the share price is way off its January entry high of $36.30. News of Slim's additional interest gave the stock a boost yesterday; it closed at $13.98 compared with the previous day end price of $11.15.
There's less enthusiasm for the stock today, though, as it has dipped by 48 cents, more than 3 percent, to $13.50.
— Ray Le Maistre, International Editor, Boardwatch