AGC 'still a stretch' for China Netcom


Hong Kong-based Asia Global Crossing's network runs up to China's borders but pricing that is proving hard

By Alex Frew McMillan

HONG KONG, China (CNN) -- China Netcom Group may yet walk from any deal to buy Asia Global Crossing Ltd., sources tell CNN.

The Chinese telecommunications group has been touted as a potential buyer for Hong Kong-based Asia Global Crossing, whose New Jersey-based parent Global Crossing is in U.S. bankruptcy.

"This may be too early, it may too much of a reach," Duncan Clark, a Beijing-based telecommunications analyst, said on Wednesday. "I would say it's a stretch."

"It may be a distraction for the company, but it may be a bold move," Clark, a partner in BDA China Ltd., added.

The deal would be the first acquisition of an overseas telecommunications company by a Chinese state-owned concern.

Team already in place

There is a self-imposed Friday deadline for preliminary bids for Asia Global Crossing, which is held 58.9 percent by Global Crossing but is a distinct entity.

Analysts consider Asia Global Crossing the most-prized of Global Crossing's regional affiliates.

As a result of its prior operations in Hong Kong, China Netcom already has a team in place that is evaluating the deal to buy Asia Global Crossing.

According to local reports, an offer is slated for this week. Dow Jones wire service reported late Tuesday that China Netcom is interested in bidding for a controlling stake, offering debt and equity.

China Netcom, the product of a recent deregulation by the Beijing government, may want to route traffic over the fiber-optic network of the company.

But any deal is far from certain until the company puts money on the table. The bidding may in fact be a result of competitive pressure from China Telecom, the telco now serving southern China, industry insiders say.

China Netcom serves the north, including Beijing, but its fixed-line assets are worth less than those in the industrial south, controlled by China Telecom. Both operated under the same parent until May (full story).

Hutch walking away?

Hong Kong conglomerate Hutchison Whampoa Ltd. appears to be walking away from making an offer for Asia Global Crossing, after failing in an initial bid for the U.S. parent, in partnership with Singapore Technologies Telemedia.

Other sources tell CNN that China Netcom is likely interested in viewing the books of the telecommunications company and may still walk away from any deal.

The ink is not even dry on the documents creating China Netcom. "There may still be some resistance in Beijing if they feel it's not ready," Duncan said.

As of Wednesday afternoon, China Netcom's own Web site still carries a "test" message under the section "Industry News" about telecoms in China (link).

China Netcom did not respond to phone calls or a fax on the topic. International interest is high because media magnate Rupert Murdoch owns part of China Netcom, via News Corp.

Hat yet thrown

But 19 bidders have sniffed around Asia Global Crossing, which has a fiber-optic cable network that reaches to China's borders. So far, few have appeared ready to price that hard asset and its debts.

Beside China Netcom and Hutchison Whampoa, a team led by Hong Kong-based Citic Pacific confirmed its interest, with U.S.-based Carlyle Group and Japan-based Softbank also part of that bid.

Despite the dot.com bust, telecommunications assets do have some value, analysts say. But assessing the value of Asia Global Crossing's real-life lines is proving hard.

China's telecommunications market requires overseas links. But Asia Global Crossing, which is valued at least at several hundred million dollars, may still prove too rich.

So what exactly is Asia Global Crossing worth?

"The value of this fiber and this network is only as good as traffic on it," Clark said.