Standard & Poor's cuts Nokia rating on cash concerns

Standard & Poor's cuts Nokia rating on cash concerns

HELSINKI - Rating agency Standard & Poor's cut its notation of fallen mobile phone maker Nokia on Friday, because of the cost to the company of buying out a joint venture with German firm Siemens S&P cut the Finnish group's long-term debt rating by one notch to B+ from BB-.

Nokia has agreed to buy the shares held by Siemens in joint venture Nokia Siemens Networks (NSN).

Nokia said on Monday it would buy 50 per cent of telecom equipment maker NSN for 1.7 billion euros (S$2.79 billion), allowing it to take full control of its most profitable business.

This initially pushed up the depressed price of shares in Nokia, since NSN performs strongly whereas Nokia as a telecom-equipment group is struggling.

But the acquisition will cut into the mobile maker's cash reserves, and this led S&P to lower its estimate of net cash at the end of this year to 1.3 billion euros, less than half a previous estimate of three billion euros ($3.9 billion).

"Nokia's strong balance sheet, which we view as an offsetting factor to Nokia's cash burn and supportive to the rating, will weaken following the acquisition," the credit rating agency wrote.

On Wednesday, Moody's said it had placed the company's Ba3 rating on review for downgrade. Once the star performer on the Helsinki stock exchange, Nokia has seen its market value plunge by 30 per cent in the past two years.

By contrast, South Korean rival Samsung, which has taken a leading position as a maker of mobile devices, said on Friday it expected to post fresh record profits in the second quarter.

It forecast a 47-per cent rise in operating profit from the figure in thesame period a year ago, to 9.5 trillion won (6.3 billion euros, $8.3 billion).

However, the firm, the world's largest maker of high-end smartphones, failed to meet analyst expectations, fuelling concerns about flagging demand for its products.

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