Nokia to Sell EU750 Million of Convertible Bonds

Nokia Oyj (NOK1V), the mobile-phone maker trying to cope with falling sales and dwindling cash, sold 750 million euros ($978 million) of convertible bonds to address approaching debt maturities. The shares declined.

The senior unsecured notes due 2017 can be handed over for Nokia shares when the stock rises 28 percent to 2.61 euros, from the current market price, and will pay a 5 percent coupon, the Espoo, Finland-based company said today in a statement. The conversion premium and interest payment are the least favorable to the company of the ranges used in marketing the notes.

“This is a big bond with a lot of credit risk,” said Tom Wills, who manages about $1.5 billion in equity-linked bonds at Morgan Stanley Investment Management in London. “It’s selling a valuable option to get its borrowing costs down a lot, and that combination is going to make it very volatile.”

Because convertible securities join a bond to a long-dated option giving the right to obtain the stock at a preset price, they allow companies to raise cash by making the two components more or less valuable. That’s helping Nokia, which has run up 4.8 billion euros in losses since early 2011, is burning through cash, and lost its investment-grade ratings this year.

“This offering is designed to further strengthen our financial position and liquidity profile while allowing us to benefit from the current attractive long-term financing opportunities in the convertible bond market,” Chief Financial OfficerTimo Ihamuotila said in the statement.

Convertible Stall

Issuance of convertible bonds in Europe stalled after 2009 until the third quarter of this year as companies seeking funding turned to traditional forms of debt amid record-low interest rates. Third-quarter convertible sales in the region were $5.5 billion, also the most for the period since 2009, data compiled by Bloomberg show.

Nokia stock fell 5.09 percent to 2.05 in Helsinki trading, valuing the company at 7.68 billion euros.

At the start of 2011, Nokia Chief Executive OfficerStephen Elop laid a bet on handsets using Microsoft Corp.’s Windows software. Nokia’s net cash has shrunk by more than half in the past five years to 3.6 billion euros.

The phonemaker lost its investment-grade rating from Moody’s Investors Service in June and is now graded Ba3. Standard & Poor’s, which grades it an equivalent BB-, stripped it of investment-grade status in April. Both firms have negative outlooks on the issuer, a signal they expect any rating change will be lower.

The company had short-term borrowings of 1.39 billion euros outstanding at the end of the third quarter, as well as short- term liabilities such as deferred income tax of 10.1 billion euros, Bloomberg data show. The company has bond repayments looming starting in 2014.

Bank of America Merrill Lynch, Barclays Plc, Citigroup Inc. and Deutsche Bank AG managed the transaction.

To contact the reporters on this story: John Glover in London at johnglover@bloomberg.net; Ville Heiskanen in New York at vheiskanen@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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