Things are not going as planned for Nokia. The company’s decision to buy out Siemens ownership in the Telecom Equipment Joint Venture NSN has had a negative market response. Ratings agency S&P has now reduced Nokia’s rating by one, to B+ from BB-, reason for this being anticipation of net cash fall after the decision of buying out Siemens share for €1.7 billion ($2.2 billion). S&P says that it now anticipates “Nokia’s net cash could be as low as 1.3 billion euros at the end of 2013.” It should be noted that Nokia’s current rating by S&P is four levels below investment grade and other rating agencies are in process of considering downgrading Nokia’s position too.
Nokia came up with this step to take full control of the now-profitable telecom equipment business which could help offset losses that the company is currently facing from its hardware and Windows Phone business.
The deal amounting to €1.7 billion will be made with €1.2 billion in cash, and rest through secured loan due with Siemens one year after the deal is closed.
The company, in Q1 2013 has incurred total loss of $196 million.
Timo Ihamuotila, Nokia’s executive VP and CFO, responded to the rating downgrade, by saying that the “Company’s financial position remains strong.”
“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. We will continue to prudently manage our cash resources post-transaction.”