Moody's Downgrades Nokia Credit Rating to Junk Status

June 15, 2012

'Nokia's far-reaching restructuring plan ... delineates a scale of earnings pressure and cash consumption that is larger than we had previously assumed,' Moody's said.

Agence France-Presse

Ratings agency Moody's on June 15 downgraded its long-term credit rating of Finnish telecommunications group Nokia (IW 111/61) by one notch to the speculative level of "Ba1" and said its outlook remained negative.

"Today's rating action reflects our view that Nokia's far-reaching restructuring plan ... delineates a scale of earnings pressure and cash consumption that is larger than we had previously assumed," a Moody's statement said, quoting senior vice president Wolfgang Draack.

The agency nonetheless considered Nokia's decision to take on a drastic restructuring of its operations "as positive and necessary to return the group to profitability.

"A return to profitability also depends on Nokia successfully transitioning its range of smartphones to the new Windows operating system and stabilizing its feature phone business," the statement said.

Nokia, one of the world's biggest mobile phone makers, shocked markets on Thursday when it unveiled 10,000 more job cuts as part of deep additional cost-cutting measures.

"These planned reductions are a difficult consequence of the intended actions we believe we must take to ensure Nokia's long-term competitive strength," Nokia chief executive Stephen Elop said.

Following the news, Nokia, which only recently lost the world number one ranking it had held for 14 years, saw its share price plunge more than 16% on the Helsinki stock exchange.

The company, which has been undergoing a major restructuring for more than a year, said it would implement an additional 1.6 billion euros (US$2.0 billion) in cost reductions by the end of next year, especially affecting its beleaguered Devices & Services unit.

Moody's underscored positive elements at the Finnish group meanwhile, noting "that Nokia has maintained a strong liquidity position and capital structure. In addition, "for its liquidity needs, Nokia also has a reliable 1.5 billion euro revolving credit facility due in 2016," the ratings agency said.