Moody’s weakens Nokia’s debt rating from Baa2 to Baa3, perilously close to junk status

Short-selling accelerates Nokia’s negative share price development

Timo Ihamuotila

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The Finnish mobile phone giant Nokia’s share price dropped below the three euro mark on the Helsinki Stock Exchange on Monday. This is the first time the company’s price per share has been under EUR 3.00 since April 1997.
      The troubled handset manufacturer's share price went down by just over two per cent from Friday’s closing rate to EUR 2.996.
      In addition to Nokia’s profit warning, the weakening of the share price was presumably also triggered by the investors short-selling Nokia’s stock believing that the share price would continue on its downward trend and hence trying to accelerate the development.
      Last Wednesday Nokia issued a profit warning, according to which it is possible that the company’s Mobile Phones business unit’s operating losses will increase during the current quarter compared with Q1/2012 (due to be reported officially on Thursday).
     
In the profit warning on Wednesday of last week, Nokia estimated that the Mobile Phones business unit’s net operating loss excluding one-time items was EUR 126 million in the first quarter of 2012.
      After the profit warning, the American credit rating agency Moody’s decided to lower Nokia’s long-term credit rating by one notch from Baa2 to Baa3.
      In Moody’s classification Baa3 is the lowest rating for investment grade stock. While still just about investment-worthy, Nokia now stands only two notches above junk status.
     
The credit rating agency has paid attention especially to the fact that Nokia has struggled even with the sales of its basic handsets this year, in the face of fierce competition from China, for instance.
      Nokia’s last year’s operating profit without non-recurring items was EUR 1.8 billion, of which, according to Moody’s, EUR 1.5 billion came from the sales of the basic entry-level phones.
      "Nokia is quickly taking action. Nokia will continue to increase its focus on lowering the company's cost structure, improving cash flow and maintaining a strong financial position," said Timo Ihamuotila, Nokia Executive Vice President and CFO, in Nokia’s response to the credit rating announcement by Moody’s.


Previously in HS International Edition:
  Nokia´s troubles continue to deepen (12.4.2012)

Links:
  Nokia press release: Nokia comments on Moody´s credit rating announcement
  The Register: Moody´s downgrades Nokia to near-junk status

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