Nokia Plans To Lower Debt By $2.8B By Q2 2016

Nokia 8Hermann / Pixabay

Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) aims at shrinking its debt by around $2.8 billion by the second quarter of 2016, saving thereby $138 million in interest costs. Additionally, the Finnish company is planning to repurchase shares worth $1.72 billion over the next two years. Last month, Microsoft acquired Nokia’s devices and services business for more than $7.2 billion.

Nokia aiming for investment grade

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) highlighted in its annual report that it will bring down the interest bearing debt by approximately euro 2 billion by the end of the second quarter of 2016. After bringing down its debt, the company said, it would be able to save no less than EUR 100 million related to recurring interest costs. The Lumia maker clarified that by reducing debt it would be able to retain its status as an investment Grade Company.

The report further mentioned that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will reduce interest bearing debt by utilizing applicable maturity dates, call dates or other terms, which will enable redemption or retirement of debt or by making offers to repurchase debt in the open market.

Capital structure to be made efficient

“Nokia Board also proposes a share repurchase authorization to facilitate euro 1.25 billion of planned share repurchases over two years,” company said in its annual report. Nokia is aiming to repurchase up to 370 million shares, which is less than 10% of the company’s shares outstanding.

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is expected to re-propose its share repurchase plans at the Annual General Meeting in 2015 as the term of the repurchase authorization is for a maximum 18 months under Finnish regulation. The report said that shares would most likely be cancelled. The shares must be repurchased in the open market, in privately negotiated transactions by using derivative instruments, or through a tender offer made to all shareholders on equal terms.

Debt reduction, as well as the share repurchase program of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), is part of the capital structure optimization program. Nokia is targeting improved efficiency of its capital structure along with resuming ordinary dividends, distributing excess capital to shareholders and reducing interest bearing debt. Nokia intends to return euro 3 billion of cash to investors through dividends and share repurchase along with euro 2 billion debt reductions over the next two years.

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com

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