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The spectre of bankruptcy loomed for WorldCom on Wednesday as the United States telecommunications firm's shares plunged after news it had inflated its profits by US$3.9 billion in one of the largest accounting scandals in history.

WorldCom, the second biggest US long-distance telecoms group, on Tuesday night fired its chief financial officer Scott Sullivan and said it would restate its results for the past five quarters, erasing all profits from the beginning of last year.

The news further soured investor confidence following the crash of energy trading company Enron, telecoms giant Global Crossing and conglomerate Tyco International.

'This is just another nail in the coffin of confidence,' said Paul Marsch, a London-based Morgan Stanley telecoms analyst.

Trading in WorldCom shares was halted yesterday after they lost nearly all of their value in pre-market trade, plunging to nine cents a share. They closed at 83 cents on Tuesday.

The group had a peak value of US$115.3 billion in June 1999 when shares reached a high of US$62.

In Hong Kong, ABN Amro telecom analyst Joe Locke said Asian telecoms companies were unlikely to have much in common with WorldCom, but would not move out of the shadow of industry weakness soon. 'The message is clear: If you have telecoms stock, sell it,' he said.

WorldCom, which switched auditors from Andersen to KPMG this year, called in the Securities and Exchange Commission (SEC) after it discovered it had booked operating expenses as capital investments, flattering cash flow.

The regulator, which had already been investigating the group, ordered a detailed report from the company, while reports said the Justice Department had begun a criminal probe.

WorldCom, which gets 89 per cent of its revenues from the US, promptly announced plans to axe 17,000 jobs, or more than 20 per cent of its workforce, starting on Friday.

The group had been struggling to refinance US$30 billion in debt, and talks with its lenders to secure US$5 billion in financing were likely to be derailed, analysts said.

WorldCom's former chief executive and co-founder Bernie Ebbers quit in April owing the company more than US$366 million for loans and loan guarantees extended to him.

Mr Ebbers, who had funded more than 60 acquisitions with his highly-valued stock over a decade, fell on his sword after the SEC probed the firm's support.

'When you look at the history of WorldCom, and their acquisition trail, you have a classic wheeler-dealer. And now this is the age where wheeler-dealers get called for what they are,' said Frank Dzubeck, president of consulting firm Communications Network Architects.

Robertson Stephens promptly downgraded its WorldCom recommendation to 'market underperform' from 'strong buy', saying a bankruptcy filing was 'highly likely' within the next 12 months.

Other analysts said it might avoid insolvency because it had blown the whistle on itself.

SG Securities co-head of Asian telecom research Charles Peza said WorldCom's problems raised different concerns about regional carriers' accounting. 'Asian [carriers] are more conservative in their accounting than US firms . . . Here they make the little profit look more attractive, not to make a disaster less of a disaster,' Mr Peza said.

Mr Peza cited the case of China Mobile which had inflated its previous earnings as it had written off 297.5 billion yuan (about HK$278.8 billion) in total goodwill in the previous three acquisitions against reserves instead of amortisation.

'It's not accounting fraud but it's liberal accounting,' he said.



WorldCom bankruptcy looms