Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is moving closer to achieving its goal of having an investment-grade credit rating after receiving another upgrade from Fitch Ratings.
This second upgrade came after the Finnish company completed the sale of its handset business to Microsoft Corporation (NASDAQ:MSFT) for $7.5 billion.
Long-term debt raised to BB
Fitch upgraded the long-term debt rating of Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) from BB- to BB, citing the reason that the company’s cash flow is stable and the turnaround of its core wireless networks business is “impressive.”
The global rating agency believes that Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s continuing operations demonstrate a “more stable and visible cash flow given the considerable drag on earnings and cash flow pressure exerted by handsets.”
Balanced and cautious approach
Fitch Ratings also noted that the Finnish company is taking a balanced approach in using proceeds from sales and a cautious approach in capital structure based on its extraordinary shareholder distribution of €2.25 billion and €2 billion in debt reduction.
The global rating agency estimated that Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has more than €5 billion in cash to be managed, subject to ongoing cash flow generation.
Nokia’s stable outlook
Fitch Ratings also issued a stable outlook for Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). The global rating agency explained that the stable outlook reflects its view that some uncertainty exists regarding the sustainability of the current margin and cash flow profile of the company, despite the fact that the financial metrics and capital structure are strong for a BB rating.
“While the performance of Networks is well established, its performance has been achieved in part due to contracting revenues where unprofitable business has been proactively exited. The outlook therefore reflects caution over how margins and in particular working capital cash flows will perform in a market where Nokia’s Networks division is expecting to stabilize and potentially grow its revenues,” according to Fitch Ratings.