Nokia Corp. (NYSE:NOK) took a downgrade to its credit rating from Standard and Poor’s on Friday, with the ratings agency pointing to this week’s deal for the handset maker to buy out Siemens’ (NYSE:SI) half of a joint venture as likely to weaken the company’s balance sheet.
The Finland-based company saw its long-term corporate credit rating cut to B+ from BB- after news of the $2.21 billion deal to acquire the remaining 50 per cent stake in the Nokia Siemens Networks joint venture broke Monday.
S&P said it feared that Nokia’s net cash could go as low as US$1.67bn by the end of this calendar year as a result of the purchase, to be partially financed by debt, which will make the company formed in 2007 a wholly owned subsidiary of Nokia.
Nonetheless, Nokia had its short-term corporate credit rating, with a stable outlook, affirmed by Standard and Poor’s, which also cut the issue rating on the handset maker’s senior unsecured debt to B+ from BB-.
“The ratings reflect our revised assessment of Nokia’s financial risk profile assessment to ‘aggressive’ from ‘significant,”’ the agency said. “We continue to assess its business risk profile as ‘weak.’”
According to agency definitions, this new rating denotes the company as being “more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments”.
Nokia said it believes the deal to buy out Siemens, designed to lend aid to the company’s struggling smartphone division to be carried out this fiscal quarter, would add value to the company.
“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,” said CFO Timo Ihamuotila in an email quoted by Bloomberg. “We will continue to prudently manage our cash resources post-transaction.”
Shares in Nokia were trading up on the NYSE the day of the downgrade, adding more than 2.5 per cent from a previous close of $3.93 per share to hit as high as $4.04 in intraday trading.