Investors applauded Hutchison Whampoa's proposed investment in distressed United States undersea cable operator Global Crossing but analysts warned it did not fit into the conglomerate's long-term strategy. Hutchison shares jumped 4.17 per cent to HK$75 yesterday after it proposed to jointly pay with Singapore Technologies Media US$750 million for an expected 70 per cent to 80 per cent stake in Global Crossing, which has filed for Chapter 11 bankruptcy protection. The deal is conditional on approval from creditors and confirmation of a reorganisation plan by US courts before the end of August. Investors were banking on the ability of Hutchison to turn Global Crossing around and enhance the value of its assets. 'If they are able to turn [Global Crossing] around, they may be proven to have been buying these assets on the cheap,' SG Securities analyst Robert Sassoon said. Investor sentiment was also buoyed by Hutchison's successful investment last year in distressed US online retailer Priceline.com, which has generated returns of more than 100 per cent, according to a research note by ABN Amro analyst Eddie Lau Kwok-lap. 'We note that return on investments in distressed US assets for Hutchison has been phenomenal,' Mr Lau wrote. Few details were available about what Hutchison intended to do with the assets of Global Crossing, which has yet to finalise a debt restructuring programme. Most analysts expect Hutchison to restructure Global Crossing with a view to selling it, rather than try to integrate it into the company, which has recently focused on building its third-generation mobile phone network in Europe. 'We believe the proposal may be a good investment opportunity for Hutchison if a substantial reduction in [Global Crossing's] debt can be achieved,' ING Barings analyst Cusson Leung wrote in a research note. 'However, we do not expect Hutchison to operate the assets as part of its core operations, given that we do not see much synergy between the optic-fibre operation of Global Crossing and Hutchison's European 3G ambitions.' Hutchison already had links with Global Crossing. Affiliate Asia Global Crossing and Hutchison each own half of Hutchison Global Crossing, which provides fixed-line, Internet and data services. Hutchison also holds US$400 million worth of preferred stock in Global Crossing and some analysts expect this to be written off in the debt restructuring. 'Under the current terms of the proposal, existing common shareholders and preferred shareholders would not participate in the new capital structure. In this case, Hutchison would have to write off its preferred stock holdings,' Mr Leung said. To account for this write-off, ING Barings slashed Hutchison's net profit forecast for the year to December 31 last year by 27 per cent to HK$8.6 billion. This contributed to ING Barings lowering its recommendation on Hutchison from 'buy' to 'hold'. In Global Crossing's filing for Chapter 11 bankruptcy protection - which gives it breathing space from creditors' repayment demands to draw up a restructuring plan - it said it had assets of US$22.4 billion compared to liabilities of US$12.4 billion. Though Global Crossing's assets dwarf its liabilities, the firm could not service its debt. Analysts estimate creditors will need to take a cut of 70 per cent in the amount of money they are owed by Global Crossing if the firm is to survive. Even if Hutchison fails to rescue Global Crossing it will have a relatively small impact on the Hong Kong conglomerate. 'In terms of absolute amounts of money that Hutchison has to put in, it is relatively insignificant - they have about US$17 billion of cash and liquid funds,' Mr Sassoon said. Credit rating agency Standard & Poor's said the proposed deal would not affect Hutchison's A credit rating. 'Standard & Poor's believes that the demise of Global Crossing underlines the risks associated with start-up telecommunications ventures, to which Hutchison Whampoa is exposed,' the ratings agency said.