Nokia Oyj (NOK1V)’s rating was lowered to junk by Standard & Poor’s, the second debt rating company to strip the Finnish mobile-phone maker of an investment grade after losses at its handset business.
The ranking was cut by one step to BB+ from BBB- with a negative outlook, meaning Standard & Poor’s may further reduce the rating, it said in a statement today. Fitch Ratings made the same move this week. Moody’s Investors Service still rates Espoo, Finland-based Nokia’s debt the lowest investment grade.
“The rating action reflects a downward revision of our expectations for revenues from Nokia’s devices and services division in 2012 and a subsequent revision of our profitability and cash flow assumptions,” Standard & Poor’s (SPY:US) said.
Nokia is burning cash 14 months after linking up with Microsoft Corp. (MSFT:US) to make Lumia smartphones that run on the Windows operating system. The company this month reported a first-quarter operating loss for its handset unit and said the margins would be similar or worse in the current period.
The cost of insuring Nokia bonds using credit-default swaps has more than doubled since mid-January. It rose 13 basis points, or 2 percent, to 615 basis points, according to Bloomberg prices. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Nokia shares rose 0.1 percent to 2.76 euros at 3:59 p.m. in Helsinki, giving the company a market value of 10.3 billion euros ($13.6 billion).
Chief Financial Officer Timo Ihamuotila said today that the company’s financial position, with net cash of 4.9 billion euros as of March 31, “remains strong.”
“Nokia is in the middle of a transformation program which encompasses every aspect of our business,” Ihamuotila said in a statement. The phone maker is focusing on lowering “costs, improving cash flow and maintaining a strong financial position, while bringing attractive new products to market.”
Standard & Poor’s rated Nokia A as recently as March 2011 and has cut it five steps since. The ratings agency last lowered its rating on March 2.
Samsung Electronics Co. has overtaken Nokia as the world’s biggest vendor of mobile phones for the first time, ending the Finnish company’s 14-year run as the global leader, according to an industry study.
Samsung shipped 93.5 million handsets in the first quarter, 36 percent more than a year earlier, compared with 82.7 million for second-ranked Nokia, researcher Strategy Analytics said in a statement today.
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