Share sale on horizon, says Asia Netcom

Marine cable firm targets HK or London IPO as it carries out US$200m expansion

Regional submarine cable operator Asia Netcom expects to sell shares in an initial public offering in London or Hong Kong within 18 to 24 months amid rising investor interest in telecommunications shares, president and chief executive William Barney said yesterday.

The company disclosed the share sale plan as it embarks on a US$60 million to US$200 million network expansion programme over the next five years.

A share sale and even a modest boost in capacity would mark a turnaround from the dismal state of the business just a few years ago.

After telecommunications shares collapsed in 2000, investors shunned any new offering from the sector. And the massive overinvestment in telecommunications networks that brought many companies to their knees meant vast amounts of excess capacity made expansion plans seem a little more than a pipe dream.

A consortium led by China Netcom, the mainland's second-largest fixed-line operator, bought what became Asia Netcom in 2003 from United States operator Asia Global Crossing for about HK$10 billion.

In August, China Netcom sold Asia Netcom to a group of financial investors including Ashmore Investment Management, Spinnaker Capital and Clearwater Capital Partners for US$402 million.

Asia Netcom has not turned in a profit in recent years due to excess bandwidth capacity in the region dating back to the telecommunications boom of the 1990s.

The new owners control another regional submarine cable operator, C2C Cable. The Asia Netcom chief executive yesterday declined to comment on whether the two companies will be merged.

Mr Barney said the company is now debt-free and has positive cash flow and earnings before interest, tax, depreciation and amortisation.

The company will expand either by buying existing assets from other operators or building new capacity on its own, he said, citing strong demand from such countries as China, India and Vietnam.

Asia Netcom's major markets include Hong Kong, the United States and Japan. China accounts for less than 10 per cent of group revenue.

With China Netcom out of the picture, Mr Barney said it may be easier for the firm to expand its business in South China, which is dominated by the country's biggest fixed-line operator, China Telecom.

'We are now free to build up relationships with other mainland carriers,' Mr Barney said. The multinational companies that it targets as customers are 'located mainly in the south.'

He added that prices for submarine cable service appear to have bottomed out, or in some cases even risen, over the past year.

'The price of transpacific cable [service] recorded a 5 per cent to 9 per cent decline last year, while for the Australian and New Zealand route, the price doubled over the past six months,' he said.