Bond view.    GCX 2019s (81/82 as we write) are not very far from our conservative recoveryestimate of ~75 cents (after PV). However, technicals are a bigger concern forus with the bonds mostly held by real money investors and headlines at RCOMlikely to get worse. Our regular readers will know that we have beenexpressing our negative view on this complex through the RCOM bonds tillvery recently. GCX has relatively outperformed RCOM, albeit is down 6-7points from October highs of ~88. We maintain our Hold recommendation,waiting for an even better entry point. We broadly see low/mid 70s to mid/high80s as the range, where we would look to buy and sell the GCX 2019s(assuming no new material development). Key upside risks include securednature of the bonds, sale to a strategic buyer, better-than-expected resolutionat parent RCOM, while downside risks are weak industry dynamics, lack ofFCF generation and RCOM's inability to sell GCX for the past almost 10 years.    Can the bonds be refinanced.    It won’t be easy. With the 2019s trading at 20% yield and parent RCOM inrestructuring, the bond markets are practically shut for GCX. Some of therelationship banks have also pulled their support as witnessed in them notrenewing the USD30 million credit lines. Underlying business remainschallenging with industry overcapacity and falling ASPs, hence we are nothopeful of any material free cash flow generation. The best hope forbondholders perhaps is finding a strategic buyer before maturity, but again,RCOM’s strategy on this front is not clear, i.e., whether it wants to keep GCXor sell. Even if RCOM wants to sell, we are not sure a buyer can found at theright price – see our note, “Fifth time lucky?” dated June 14 for more details.    Having said this, GCX sale might be forced by the bank lenders if they seesome equity value in it.    What’s the true EBITDA.    In its earnings presentations, GCX shows a Reported EBITDA and a CashEBITDA (Figure 1). Cash EBITDA is calculated by deducting the deferredrevenues from past IRU sales and adding back the recent period IRU sales toReported EBITDA. While step one of this process is correct, we believe all ofthe recent period IRU sales is not collected in cash, so even the Cash EBITDAis likely not reflective of true EBITDA for the company. This possibly alsoexplains GCX almost never being FCF positive despite annual Cash EBITDA ofUSD80-90 million versus interest & tax bill of USD25-30 million andmaintenance capex of USD20-25 million (Figure 2). At the same time, FCFhasn’t been materially negative despite declining IRU sales (Figure 3). Thisleads us to conclude that GCX is just making enough EBITDA to cover interest,tax and maintenance capex, which totals to about USD50 million. To be clear,we haven’t adjusted the EBITDA lower for revenues from RCOM as it hasn’tbeen received in cash anyways in recent quarters. Separately, we understandthat the operations haven’t been impacted so far from the negative headlinesaround RCOM and will look for an update when 2Q results are announced incoming weeks. Plus, GCX does have some marquee customers, with USmilitary being the latest addition to its roster.

声明：如本站内容不慎侵犯了您的权益，请联系邮箱：wangshiyuan@epins.cn 我们将迅速删除。