Standard and Poor have downgraded the debt rating of Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) further to Junk, expecting that the net cash of the phone maker will decline after it acquires the stake of Siemens AG (NYSE:SI) (FRA:SIE) (ETR:SIE) in the Nokia Siemens Joint Venture for 1.7 billion euros ($2.2 billion).
Debt rating was revised from BB- to B+, which is below investment grade by four levels according to S&P. The net cash flow of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) might decline to as low as 1.3 billion euros towards the end of the year.
Other rating agency also watching
Nokia is on the radar of Moody’s Investor Service that is seeking to downgrade the Finnish handset maker. Fitch Rating on the other hand, holds the view that the balance sheet will be affected by the current acquisition.
Nokia has taken the correct decision from a strategic point of view. However, the transaction will weigh heavily on the balance sheet of Nokia at present, when the core business of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is not flourishing, according to Owen Fenton and Stuart Reid, analysts at Fitch in London.
Nokia buying Siemens stake
Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is acquiring 50 percent in the Nokia Siemens Networks by paying 1.2 billion euros and the remainder will be in the form of secured loans from Siemens due after a year of the completion of the deal. Stephen Elop said that Nokia is not seeking to incorporate Nokia Siemens and will search for the appropriate partner.
Nokia holds the second position in the biggest phonemaker series and is reeling under massive debt of 5.27 billion euros, according to the data of Bloomberg. The acquisition of Siemens’ stake will give it an advantage of owning a more profitable business than its core business. Nokia Siemens’ cash flow will fuel the business and enhance the sales.
Enough liquidity
Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is expecting that the cash resource of the company at the end of the second quarter will be in the range of EUR 9.2 billion – EUR 9.7 billion in gross cash and between EUR 3.7 billion – EUR 4.2 billion in net cash.
The handset maker revealed that it has additional liquidity through revolving credit facility of EUR 1.5 billion, which is intact as of now and is accessible by the company through March 2016. Additionally, Nokia Siemens has Euro 750 million revolving credit facility, which is not yet drawn and available through June 2015.
Timo Ihamuotila, Nokia’s chief financial officer said that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) took advantage of its strong positive gross and net cash position to acquire Nokia Siemens wholly.
