Nokia Rating Cut Further Into Junk by S&P on Siemens Buyout
Nokia Oyj (NOK1V)’s debt rating was cut one step deeper into junk by Standard & Poor’s, which said the handset maker’s net cash may tumble after it agreed to buy Siemens AG (SIE)’s share in their equipment venture for 1.7 billion euros ($2.2 billion).
The rating was lowered to B+ from BB-, four levels below investment grade, with a stable outlook, S&P said in a statement today. The rating company said Nokia’s net cash may fall as low as 1.3 billion euros at the end of this year. Moody’s Investors Service put Espoo, Finland-based Nokia on review this week for a downgrade, while Fitch Ratings said the acquisition would pressure the company’s balance sheet.
Nokia will pay 1.2 billion euros for Siemens’s 50 percent stake in Nokia Siemens Networks, with the remainder as a secured loan from Siemens due a year after the deal is completed. Nokia doesn’t plan to integrate Nokia Siemens and may decide to seek partners, Chief Executive Officer Stephen Elop said this week.
“With a strong positive gross and net cash position, Nokia was able to take advantage of an opportunity to fully own Nokia Siemens Networks and, we believe, create meaningful value for Nokia shareholders,” Timo Ihamuotila, Nokia’s chief financial officer, said in an e-mail. “We will continue to prudently manage our cash resources post-transaction.”
Nokia shares fell 2 percent to 3.10 euros at 1:02 p.m. in Helsinki.
Nokia is the second-biggest maker of mobile phones and has 5.27 billion euros in debt, according to data compiled by Bloomberg. By acquiring the Siemens stake it gains control over a business that’s more profitable than its own and whose cash flow will support its attempts to improve phone sales and take on Apple Inc. and Samsung Electronics Co.
Nokia should come to the market to refinance as soon as there’s an opportunity, Malin Hedman, a credit analyst at ING Bank NV in Amsterdam, said in an interview this week.
The handset maker’s decision to buy the 50 percent stake in Nokia Siemens Networks “makes strategic sense, but puts pressure on Nokia’s balance sheet and comes at a time when the future of its handset business is still uncertain,” Owen Fenton and Stuart Reid, analysts at Fitch in London, said in an e-mail.
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