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April 6, 2006 3:14 am

Ashmore-led UK investors set to buy Asia Netcom

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A group of British investors led by Ashmore Investment Management is poised to pay US$354m to acquire Asia Netcom, the international undersea cable unit owned by Chinese fixed-line telecoms operator China Netcom.

A person familiar with the situation said on Wednesday the UK investors had signed an MOU granting 30 days' exclusive negotiating rights for the former regional business of defunct international cable operator Global Crossing.

The purchase would give the group, which also includes Spinnaker Capital and General Enterprise Management Services (GEMS), a substantial base for building a strong position in regional cable capacity.

"Ashmore looks at [Asia Netcom] as a platform to acquire other assets in the region," said the person familiar with the situation. "This is a first stage."

Ashmore already has a considerable interest in Asian cable operator C2C after buying into the failed Singapore Telecom unit's debt last year.

The person familiar with the situation said the British investors could also seek to buy Pacific Crossing, another former Global Crossing unit that operates the PC-1 cable that links the US and Japan.

Such a move could give Ashmore and its partners interests in up to 70 per cent of regional undersea cable capacity, in what would be a substantial step toward consolidation in a sector that has struggled to generate profits since the bursting of the global telecoms bubble.

The proposed deal values Asia Netcom, which generated revenues of about US$255m last year, at about 25-27 times earnings before interest, taxes, depreciation and amortisation. The unit did not make a profit last year under generally accepted accounting principles.

China Netcom, the country's second-largest fixed-line operator, bought the unit in 2003 for more than US$120m in cash and liabilities.

The state-controlled operator had highlighted Asia Netcom's ability to help it win international corporate customers ahead of its 2004 international listing.

However, China Netcom is now understood to believe that it should focus on domestic business and that it is unlikely to achieve a better valuation for Asia Netcom, a business very different from its core fixed-line phone services.

The person familiar with the situation said India telecoms companies Bharti, Reliance Communications and VSNL had all made offers for Asia Netcom, but had failed to match the UK group's bid.

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