Nokia’s debt rating was further cut into junk by Standard & Poor’s, which claimed that the Finnish handset maker’s can run out of net cash after it settled to purchase Siemens AG (SIE)’s share in their equipment venture for a huge 1.7 billion euros ($2.2 billion).
The S&P stated that its rating was declined from B+ to BB-, four levels beneath investment level and had a stable outlook. The rating firm predicted that Nokia’s net reserves may come down to 1.3 billion euros until this year’s end. Moody’s Investors Service also downgraded Espoo, Finland-based Nokia, while Fitch Ratings said the predicted ratings can stumble the company’s balance sheet.
Nokia agreed to give 1.2 billion euros for 50 percent shares in Siemens’s in Nokia Siemens Networks, with the condition of a secured loan from Siemens due a year till the deal is finalized. Nokia doesn’t have any plans to expand to Nokia Siemens and may go for partners, CEO Stephen Elop commented this week.
“Nokia was fully capable of getting stakes in Nokia Siemens Networks following a positive gross and net balance sheet position,” Timo Ihamuotila, Nokia’s chief financial officer, stated in an e-mail.
Nokia shares had a sharp decline of 2 percent to close on 3.10 euros at Helsinki stock.
Bloomberg’s data shows that Nokia is the second-largest handset maker and has a debt of 5.27 billion euros. The decision of taking Siemens shares will ultimately benefit the mobile phone giant as it has its own profits. Its fluent cash flow will enhance the phone sales and compete with other technology giants like Apple Inc. and Samsung Electronics.
Nokia should now focus on refinancing whenever an opportunity comes to the market, Malin Hedman, a credit analyst at ING Bank NV in Amsterdam, mentioned in an interview.
The decision of purchasing handset 50 percent shares in Nokia Siemens Networks by Nokia shows its strategic wisdom and sense, but at the same time it heavily pressurizes the Nokia’s reserves sheet. It comes at a significant time when the future of its handset business is still unpredictable,” market analysts Owen Fenton and Stuart Reid at Fitch in London, stated in an e-mail.