Nokia to boost finances with €750m bond issue

Wed, Oct 24, 2012, 01:00

MOBILE PHONE maker Nokia plans to raise €750 million by issuing bonds that can be converted into shares, seeking a cheap way to bolster fragile finances as it battles to claw back market share lost to Apple and Samsung.

Once the world’s biggest mobile phone maker, the Finnish firm has fallen far behind Apple’s iPhone and Samsung’s Galaxy phones in the lucrative smartphone market, and is pinning its hopes for recovery on new models that go on sale next month.

With its cash reserves falling and credit rating cut to junk over the past year, analysts have said Nokia needs to show a turnaround in the next several months if it is to survive.

Its shares fell more than 7 per cent to about €2 in trading yesterday as investors worried that the eventual conversion of the new bonds into stock would reduce earnings per share.

But analysts said the choice of convertible bonds – which normally pay lower interest rates than normal bonds because they offer investors the chance of making money when they are converted into shares – was a smart one.

“It is a rather cheap way to get extra financing,” said Evli analyst Mikko Ervasti. “They need buffers their 2014 bond also requires financing.”

Nokia’s net cash fell to €3.6 billion in September from €4.2 billion in June. It also finished the third quarter with €3.8 billion in interest-bearing liabilities, with €1.75 billion in bonds and loans maturing in 2014. Additionally, the company owns half of network equipment venture Nokia Siemens Networks, which ended the quarter with €1.4 billion in liabilities.

The convertible bonds will be due in 2017 and will pay a coupon between 4.25 per cent and 5 per cent. The initial price for conversion into ordinary shares is expected to be 28-33 per cent above the average price of Nokia shares between the launch and pricing of the offering.

Nokia’s fortunes hinge on its top-of-the-range Lumia 820 and 920 models, which run on Microsoft’s Windows Phone 8 software. The phones will hit the stores next month.

Nokia’s five-year credit default swaps were trading at 2.8 per cent tighter in earlier trading, meaning lower costs of insuring the firm against default. – (Reuters)