Telstra's Reach business, an undersea cable joint venture with Hong Kong's
Pacific Century CyberWorks, is believed to be renegotiating its $US1.5 billion
($2.7 billion) in debt with a string of banking and financial institutions.
Reach is facing falling returns from stakes in more than 50 undersea
telecommunication cables and is offering to pay more interest in return for
easier terms on its loan.
It is believed to be offering lenders as much as 250 basis points more than
the London interbank offered rate if creditors give it more time to pay and ease
the loan restrictions.
One media report has named ANZ Banking, Barclays, Citigroup, Credit Suisse,
HSBC, JP Morgan Chase & Co and UBS Warburg as being involved in the
A Telstra spokesman declined to comment on the speculation yesterday,
referring all questions about the joint venture's financial and operational
performance to Reach headquarters in Hong Kong.
But local telecommunications analysts confirmed the report and argued that a
repackaged debt structure would help bolster Reach in the face of a turbulent
Profit at Reach fell 38 per cent in the second half of this year from six
months earlier as spending by telecommunication companies remained depressed and
The company recorded sales of $US1.4 billion ($2.5 billion) last financial
year and profit before interest, tax, depreciation and amortisation of $US434
million. However, profit was down to $US79 million before interest and tax in
the second half of this year.
The joint venture's performance has prompted concern among some analysts that
the company could fall foul of its loan covenants.
``Given that Reach has not been doing particularly well, its loan covenants
could be breached," said Macquarie Research equities analyst Abhijit Attavar.
``The undersea cable business is not particularly bright."
Prices for undersea cable capacity have fallen as much as 70 per cent in the
past two years as supply outstrips declining demand. The reporter holds Telstra