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Technology Stocks : Alcatel (ALA) and France
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To: larry pollock who wrote (3783)2/19/2002 6:38:20 AM
From: larry pollock  Read Replies (1) of 3891
 
Bear Stearns's Bhogaita Comments on Alcatel Rating Cut, Bonds
By Alice James

London, Feb. 18 (Bloomberg) -- The following are comments from Chavan Bhogaita, an analyst at Bear Stearns, on the outlook for Alcatel SA, a French telecommunications equipment maker, which had its senior debt rating cut one notch to ``Baa2'' by Moody's Investors Service.

Alcatel's 1.2 billion euros ($1.1 billion) of 7 percent bonds maturing in 2006 fell, driving the yield to about 7.67 percent. That's 3.16 percentage points more than German government debt of similar maturity, an increase of about 50 basis points, according to BNP Paribas prices.

``It doesn't come as much of a surprise. `Baa2' is an acceptable rating for Alcatel. The reason Moody's cut it is because of weakness of demand in this market.''

``This is likely to lead to increased competition within the equipment sector. That could significantly erode any gains (Alcatel) makes through cost reduction because it will erode profit margins. Demand for equipment is still being hurt because of reductions in (spending) by the service providers.''

``We don't like any of the equipment makers' bonds. The problem for Alcatel and its competitors alike is the lack of any evidence the downturn has reached the bottom. I recommend staying underweight position in all the sector's bonds. I don't like the sector as a whole.''

Further price declines in Alcatel bonds may be limited because many investors expected rating cuts, he said. ``A lot of the bonds for these companies have already priced in expectations for rating cuts.''
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