Alcatel, Marconi Ratings Are Cut Two Notches By S&P (Update1)
By Cecile Daurat
London, Aug. 6 (Bloomberg) -- Alcatel SA, Europe's fourth- largest maker of phone equipment, and British rival Marconi Plc had their long-term debt ratings cut two notches by Standard & Poor's on concern about waning demand for their products.
S&P cut Marconi's rating to ``BBB-,'' one notch above junk status, from ``BBB+,'' and Alcatel's to ``BBB+'' from ``A.'' In both cases, S&P cited ``extreme adverse structural change'' in the industry and said the outlook for both companies was ``negative.''
``What comes across is the extremely bearish tone that S&P is taking on the industry,'' said Patrick McCullagh, a credit analyst at Merrill Lynch who recommends investors sell Marconi and Alcatel bonds. ``The phrase `extreme adverse structural change' sounds pretty biblical to us.''
British Telecommunications Plc, a Marconi client, and other telecoms companies have cut spending on new networks as the U.S. and European economies have slowed. Alcatel, Marconi and rivals including Nortel Networks Corp. posted losses and announced thousands of job cuts as sales of phone equipment slumped.
Marconi's shares fell 3 pence, or 3.2 percent to 92 pence. They have lost 91 percent in the past year. Shares of Paris-based Alcatel fell 16 cents, or 1 percent, to 20.94 euros.
Others Cut
The downgrades come after U.S. rivals' debt ratings were cut last week. S&P lowered Lucent Technologies Inc.'s rating two notches to ``BB-'' from ``BB+'' in the company's fourth downgrade since December. Nortel's credit rating was lowered by Moody's Investors Service to ``Baa1'' from ``A3.''
London-based Marconi on July 4 said a 15 percent drop in sales this fiscal year will halve its operating profit. The company has said it will cut a total of 10,000 jobs and reduce its total debt to 2.5 billion pounds ($3.5 billion) by the end of the end of the year, from 3.2 billion pounds as of March 31.
``The achievement of Marconi's debt and profitability targets will be challenging, given the degree of uncertainty about whether the equipment market has reached its lowest point,'' S&P said in a statement.
If Marconi doesn't meet its forecasts, the rating may be cut further, S&P said. That could cut Marconi's bonds to junk status.
Marconi's rating is likely to fall to junk unless the industry's growth improves in the next six months and it cuts debt, Rick Deutsch, head of credit research at BNP Paribas, wrote in a note to investors.
Alcatel, on the other hand, may maintain its ratings if the industry rebounds in the next nine months ``as they have a much broader product portfolio and customer portfolio,'' Deutsch said. He said he's expecting the first signs of growth to emerge in the next six to nine months.
Paris-based Alcatel reported in July a second-quarter loss of 3.1 billion euros, its biggest since it lost 3.9 billion euros for the full year in 1995. Chief Executive Serge Tchuruk said last month he expects sales this year to match those of last year and doesn't foresee a rebound in the market for network gear until 2002.
S&P said the time and extent of the market's recovery are ``highly uncertain and largely beyond the company's control.''
Alcatel's downgrade is ``on the bearish end of expectations - - they came down two notches and they still consider the odds to be stacked against them,'' McCullagh said. |
