Nokia Siemens Networks, the phone- equipment venture of Nokia Oyj (NOK1V) and Siemens AG, may sell as much as 750 million euros ($1 billion) of bonds to bolster its finances, according to a person familiar with the plans.
The company’s board still needs to approve the sale of the debt, said the person who asked not to be identified because the plans aren’t public. Riitta Maard, a Nokia Siemens spokeswoman, declined to comment.
Nokia Siemens, which vies with Huawei Technologies Co. for the second spot in the wireless-gear market behind Ericsson AB, returned to profit last year. Espoo, Finland-based Nokia Siemens and Paris-based Alcatel-Lucent SA (ALU) are among mobile-systems providers that cut jobs and costs as the slowing global economy crimped spending on mobile-network infrastructure.
“The company has shown some improvement in terms of its results,” said Robert Jaeger, a technology, media and telecoms analyst at Societe Generale SA in London. “Given that it’s a difficult sector and the company’s much smaller than Ericsson, I’d expect the rating to be somewhere in the BB space.”
Nokia’s debt is ranked BB- at Standard & Poor’s and Fitch Ratings and an equivalent Ba3 by Moody’s Investors Service, three levels below investment-grade status. All three raters have a negative outlook on Nokia. Siemens AG (SIE) is graded A+ by S&P and Fitch and Aa3 at Moody’s.
Speculative-grade, or junk, debt is ranked below Baa3 by Moody’s and BBB- by Fitch and S&P.
Nokia Siemens is considering a bond sale as investor demand for higher-yielding assets pushes borrowing costs to record lows. Junk-rated securities yield 5.3 percent on average, down from 11.6 percent a year earlier, according to Bank of America Merrill Lynch’s Euro High-Yield Index.
European issuers sold 3.5 billion euros of junk bonds this year, more than 10 times the amount raised in the same period of 2012 and the busiest start to a year since 2010, data compiled by Bloomberg show.
The cost of insuring Nokia debt against default rose two basis points to 592, according to Bloomberg data at 12 p.m. in London. Credit-default swaps on Nokia dropped to a nine-month low of 581 basis points on Jan. 14 from 1,244 in July. A decline in the contracts signals improvement in perceptions of credit quality.
This month, Nokia said Nokia Siemens had a fourth-quarter operating profit of 13 percent to 15 percent of sales excluding some items, beating Nokia’s forecast. In October, Nokia Siemens posted its first quarterly sales increase and profit since last year, helped by demand for long-term evolution, or LTE, networks that allow faster data speeds.
Nokia and Siemens abandoned talks with private-equity companies in July 2011 over the network venture as the buyout firms failed to come up with a compelling offer. The parents said two months later Nokia Siemens would “become a more independent entity.”
The Financial Times earlier reported Nokia Siemens’s plan to sell debt.
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