Nortel Stock Sinks to New Lows
By Susan Taylor
OTTAWA (Reuters) - Shares in Nortel Networks Corp. (NYSE:NT - News; Toronto:NT.TO - News) collapsed on Tuesday to lows not seen in more than a decade amid concern that its latest financing falls short of the embattled telco equipment supplier's cash needs.
Nortel, whose cash reserves and sales are tumbling as demand for its products falls around the world, said after the markets closed on Monday that it will raise $800 million in a combination of equity units and 150 million common shares.
But the company, which lost $27.3 billion last year and had its credit rating cut to junk status, did not raise as much money as many analysts suggest it needs. Nortel had filed last month to sell as much as $2.5 billion in securities.
Jitters over future financing needs sent Nortel shares tumbling.
They sank as far as C$2.74 on the Toronto Stock Exchange, down 15 percent and below the previous nadir of C$3.00, and fell to $1.79 on the New York Stock Exchange, down from a previous low of $1.95. The issue has not traded in such a depressed range since April, 1989.
It's a far, far cry from the go-go days of 2000, when the stock peaked at an all-time high of C$124.50 in Toronto.
"I think that it's a step in the right direction for them. It gets them half way to where they need to be in terms of their funding requirements for the next year," said Inder Singh, analyst at Prudential Financial.
"I think that more will be coming, either in the form of asset sales or more (financings)."
AG Edwards analyst Gregory Teets reduced his rating on Nortel from "aggressive" to "speculative" in a research note on Tuesday that suggests Nortel will need further funds by the end of 2003.
UBS Warburg estimated in a recent report that Nortel will need to raise $1.6 billion before the end of 2003. It also expects Nortel to burn through $2.1 billion in cash during the remainder of 2002 and $1.6 billion in 2003.
Bear Stearns analyst Wojtek Uzdelewicz said in a research note on Tuesday that the company may need to tap markets again "in the near future".
"If the overall telecom equipment market does not improve over the next two or three quarters, we believe that Nortel may need to raise an additional $500 million to $1 billion to shore up its balance sheet," the report said.
While the equity issues give Nortel a much-needed cash infusion for the next two quarters, Singh noted that it will further dilute the stock.
"I'm guessing that it's around 4 percent dilution this year and 14 percent dilution eventually within three years. So it's not insignificant," he said.
Nortel faces dwindling cash reserves and revenues as telecom equipment sales melt down. The Brampton, Ont.-based company had $4.8 billion in debt at the end of the March quarter.
It had $3.1 billion in cash at the end of the quarter, down from $3.5 billion at the end of last year.
Last August, the company sold $1.8 billion of convertible senior notes with a 4.25 percent coupon and 32.3 percent conversion premium.
Nortel said last week that it will cut 3,500 more jobs and may sell its fiber-optic parts business to further slash expenses. Those cuts, which will pare the company's break-even quarterly sales level to $3.2 billion from $3.5 billion, will be complete by the fourth quarter, Nortel said.
($1=$1.53 Canadian)
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IF THEY DO GO FOR ANOTHER ROUND OF FUNDING THIS STOCK WILL SEE SUB-$1 FOR SOME TIME... |
