Standard & Poor's has lowered its long-term corporate credit rating on Nokia to 'B+' from 'BB-' after the company's announced buy-out of Siemens in the Nokia Siemens Networks joint venture. S&P affirmed Nokia's 'B' short-term corporate credit rating, and the outlook for the ratings is stable.
The acquisition is expected to weaken Nokia's cash position, without adding anything to results, as it was already consolidated. Nokia has also been using up its cash to run its mobile phone operations at a loss. S&P estimates the company's cash burn at EUR 300-800 million in the second quarter of 2013. The agency cut its estimate of Nokia's net cash to EUR 1.3 billion or above at end-2013 from EUR 3 billion or above previously. Free operating cash flow is also expected to remain negative in the second half of 2013 and for the full year, and Nokia may find it difficult to return to positive cash flow in 2014, S&P expects.
Commenting on the S&P rating downgrade, Nokia said its gross and net financial position remained strong, and noted it also had access to additional cash via an undrawn credit facility. "We will continue to prudently manage our cash resources post-transaction," Nokia added.
Ratings agency Fitch, with a BB- rating on Nokia, said the acquisition made strategic sense, but added that the visibility of Nokia's mobile phone business was still limited, Reuters reports.
Moody's sees the deal as credit negative for NSN because it may affect its dividend policy to help fund the acquisition at a time when its financial profile would need to stay strong to sustain its restructuring efforts. Moody's has a B2 rating on NSN while its Ba3 rating on Nokia is on review for downgrading.
