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August 1, 2014
Two perpetually struggling international bandwidth businesses have reportedly stepped up their efforts to be acquired, and both are being looked at by the same Hong Kong-based wholesale operator.
Global Cloud Xchange , the subsea capacity division of India's Reliance Communications Ltd. (RCom), looks set to be sold to Citic Telecom International Holdings Ltd. (CTI), a unit of the Chinese government investment group Citic Pacific, according to CNBC TV-18.
Citic has also been linked to Pacnet , the progressive wholesale and enterprise service provider that is believed to be seeking US$1 billion for its current private equity owners. (See Asia's Telcos Still Figuring Out Their Cloud Moves and Pacnet Turns On SDN in APAC, US.)
RCom has been trying to offload its capacity division, until recently known as Reliance Globalcom, for years. In 2009, the Indian operator was rumored to be seeking a buyer for its submarine cable properties (formerly FLAG Telecom), and reportedly was close to selling the entire global unit in 2013. It also considered an IPO in 2012, but abandoned that plan. (See Rumor: Subsea, Ethernet Assets for Sale and Reliance Global Unit Sale Imminent.)
The timing of the latest M&A reports is intriguing, given that Reliance only introduced the Global Cloud Xchange (GCX) brand just four months ago, and recently announced a new cable project to provide a direct subsea link between Mumbai and Singapore. (See Reliance Rebrands With Its Head in the Cloud and Global Cloud Xchange Plans New Mumbai-Singapore Link.)
The deal with Citic has been in the works for months, but was reportedly delayed while GCX completed a $350 million debt issue, which was successfully completed this week. Most of the proceeds will be used to pay off a $250 million loan to GCX's parent, though some of the remaining funds will go towards the construction of the Mumbai-Singapore link.
Pacnet, which was formed in 2008 from the combination of the collapsed Asia Global Crossing and Singapore's Pacific Internet, has found the going hard in the bandwidth and managed services market, where competing with Tier 1 telcos and dealing with continual price erosion make trading tough. It generated revenues of $471.6 million in 2013, down 9% from the previous year, but its gross margin improved to 56% from 50% as it discontinued some lower-margin services.
Like GCX/Reliance Globalcom, it also considered an IPO (in 2011).
The potential involvement of Citic Telecom in both potential deals is no coincidence, as it highlights the determination of Chinese authorities to keep their communications secure in the wake of the Snowden revelations.
Julian Rawle, principal at Julian Rawle Consulting, said the Chinese "don't want to rely on others for their development -- they want to reach the US directly."
However, a further twist could be that any sale by RCom to a Chinese government-backed telco would need approval from Indian security officials. The two Asian giants have an uneasy relationship, and India has put controls on Chinese vendor gear being deployed in Indian networks.
— Robert Clark, contributing editor, special to Light Reading.
Dan O'Shea, Managing Editor, also contributed to this article.
Read more about:Asia
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