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Torrid times for Nokia as credit rating hit near bottom. Company is gradually imploding

Tuesday, 17 April 2012
Moody's lowers rating for Nokia and further reduction may be necessary if the company can not boost sales. After a tough time in the stock market continues Nokia's shares dropped yesterday.
Finnish Mobile phone manufacturer, Nokia, will continue to strike at the exchange. Last week's profit warning saw shares dropping almost 15 percent in one day collapse and continued the next day when a variety of institutions lowered their recommendations for its share.

On Monday, Moody's hit and Nokia's ratings were lowers. The share is at last after yesterday fell by 3.2 percent. The new rating for long-term borrowing is according to various sources now at Baa3, which is the lowest rating within the category of investment grade. The company is thus only a step away from junk status. Also rating for short-term borrowing is reduced, from Prime-2 to Prime-3 according to reports.

Nokia's Performance since the profit warning
+ / -%
Source: The Online Trader

Moody's also has a negative outlook to his new rating. That means, according to Bloomberg that the rating may be lowered further if there will be no turnaround in sales or if gross margins deteriorates further.
"Moody's believes that the structural changes that Nokia's mobile phone segment is facing can be difficult to manage, "said Moody's analyst Wolfgang Draack according to Bloomberg.

The cash is something of a last resort, but the company is burning cash at a rapid pace. If the cash burning rate remains high, the credit rating could come under further pressure, according to reports.
While both credit rating and stock price were lowered, it becomes increasingly expensive to insure against payment settings from Nokia. Anyone who lends money to companies by buying corporate bonds can take the opportunity to buy so-called credit default swaps, or CDSs so as to insure themselves.

The market price of Nokia CDSs has rocketed and by Monday afternoon it stood at 507. That means it costs over 500,000 euros to insure a loan of ten million.

Nokia's CEO Stephen Elop is now under great pressure and according to Bloomberg analysts are beginning to speculate on whether the company would be worth more in parts.
Its stock has lost 21 percent this year and as many as 83 percent in 5 years.

"Nokia will continue to increase its focus on lowering the company's cost structure, improving cash flow and maintaining a strong financial position," Nokia CFO Timo Ihamuotila said in a statement after the rating cut.

Nokia says it had gross cash balances of 9.8 billion euros and a net cash position of 4.9 billion euros as of the end of March.

Nokia is expected to announce its first-quarter results on Thursday. Some analysts say that Samsung has overtaken the long-time market leader in phone sales volumes during the first quarter.
By Team

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