Reach owners stretch pockets to inject new capital

18 Jun 2004

Telstra and PCCW, the co-owners of Hong Kong based submarine cable venture Reach, have revealed that they will buy back outstanding loans worth USD1.2 billion for around USD300 million, and inject new working capital into the business, in the hope of turning the struggling subsidiary around. The debt is part of a USD1.25 billion loan arrangement agreed in 2001 which was scheduled to be repaid in three tranches beginning February last year. Last April Telstra and PCCW came to an agreement with the lenders to postpone the payments dates. They also agreed to inject USD286 million into the joint venture, which was used along with Reach’s own cash reserves to cut debt by USD300 million to USD1.2 billion. In the latest move PCCW and Telstra will lend Reach an additional USD50 million towards its working capital. The Aussie telco will also recommend to its board that it write off the value of USD143 million in pre-paid capacity. Reach’s future remains uncertain and the two shareholders have initiated an extensive review of the business aimed at finding ways to diversify its revenue streams. As it stands, most of Reach’s revenue comes from its parents, which both have an obligation to purchase at least 90% of their international capacity from it.