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Nokia Cut Further Into Junk by Moody’s on Cash-Flow Concern

Nokia Oyj (NOK1V)’s debt was cut further into junk by Moody’s Investors Service, the latest downgrade for the company after it bought out its partner in the Nokia Siemens Networks venture for 1.7 billion euros ($2.3 billion).

The corporate family rating was lowered one level to B1, or four levels below investment grade, with a negative outlook, Moody’s said in a statement yesterday. Standard & Poor’s reduced the Espoo, Finland-based company’s rating last month.

Nokia is coping with cash-flow challenges stemming from weaker demand for its phones, Moody’s said in the statement. Chief Executive Officer Stephen Elop has cut more than 20,000 jobs and suspended the company’s dividend for the first time in 143 years in January in an attempt to improve its finances. Nokia reported in July a 27 percent drop in the number of handsets sold in the second quarter. It’s lost more than 5 billion euros in nine quarters.

“We believe that the company continues to face challenges returning to sustainable profitability in its core smartphone and mobile-phone operations,” said Roberto Pozzi, Moody’s analyst for Nokia. “It is unlikely to reach break-even on a cash flow basis before well into 2014, at the earliest.”

Photographer: Henrik Kettunen/Bloomberg

Nokia reported in July a 27 percent drop in the number of handsets sold in the second quarter. Close

Nokia reported in July a 27 percent drop in the number of handsets sold in the second quarter.

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Photographer: Henrik Kettunen/Bloomberg

Nokia reported in July a 27 percent drop in the number of handsets sold in the second quarter.

Nokia reported second-quarter revenue fell 24 percent as sales of its Lumia smartphone failed to make up for weakening demand for its older and more basic handsets.

Net Cash

The purchase of the Nokia Siemens network-equipment business last month for a “fairly low price” might give the company exposure to a more stable industry and ultimately improve liquidity, Moody’s said. Nokia agreed to buy partner Siemens AG (SIE)’s 50 percent share in Nokia Siemens to gain full access to venture’s cashflow.

The cost of insuring Nokia’s debt using five-year credit-default swap contracts has fallen about 17 percent this year, signaling an improvement in creditworthiness. Nokia reported net cash of 4.1 billion euros at the end of June. The company has total debt of about 5.1 billion euros, according to data compiled by Bloomberg.

“We are pleased that the strong cash position we have maintained throughout our transition has enabled us to take advantage of an opportunity to acquire full ownership of NSN, whose financial performance has strengthened markedly in recent quarters,” Nokia Chief Financial Officer Timo Ihamuotila said in a statement on the company’s website. He also said Nokia has access to more than 2 billion euros in cash through untapped credit facilities.

Nokia slipped 0.4 percent to 3.05 euros at 10:30 a.m. in Helsinki trading. The shares have gained 4.2 percent this year, valuing the company at 11.4 billion euros.

To contact the reporter on this story: Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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