Here is the article from the National Post.
Nortel asset sale seen as stop-gap
Plans to raise US$1.5B: Telco trying to offset 2002 cash drain
Michael Lewis
Financial Post
Nortel Networks Corp. says it plans to raise US$1.5-billion from asset sales, a move some analysts say is a sign the company needs to generate funds to offset a projected 2002 cash drain of nearly US$4-billion.
According to a filing with the U.S. Securities and Exchange Commission, Nortel expects to raise about US$800-million of the total from sales of North American real estate.
In addition, the Brampton, Ont.-based optical gear maker is counting on proceeds of US$400-million from sale of its discontinued access business, plus US$200-million from non-core asset sales and US$150-million from minority investments.
Nortel's access operation includes its Aptis and Promatory units, which were acquired for a total of about US$1-billion in stock and cash in 1998 and 2000, respectively.
Michael Urlocker and Nikos Theodosopoulos, analysts with UBS Warburg, said the planned sales support the view that Nortel needs non-operating cash resources before the end of this year to offset negative free cash flow.
UBS sees US$3.7-billion in negative cash flow this year based on Nortel restructuring charges, vendor financing commitments, outlays from operations and capital expenditures.
Aside from discontinued operations, UBS said the bulk of asset sales identified in the 8K filing are new, adding that Nortel's banking agreements would limit the company to US$1-billion of the proceeds. UBS Warburg also said in a research report Friday that Nortel is close to violating bank covenants relating to a US$1.5-billion credit facility, adding the company "could be renegotiating with its banks."
Nortel, with about US$7.5-billion in cash and available credit, could face asset seizures if it contravenes covenants that require, among other things, maintenance of investment-grade debt, the report said.
A credit rating downgrade to below investment grade could lead to seizures of items including intellectual and investment properties, UBS said.
Nick Majendie, an analyst with Canaccord Capital, said meanwhile that he was surprised by the amount to be raised from real estate sales, though he added that Nortel's plan is consistent with previously announced cost cuts.
Much of the company's office space became redundant as the company's sales and staff complement dropped by half over the past two years.
Nortel has also sold or discontinued several business lines, including its Xros switching unit in California, which it said on Tuesday would be mothballed.
The company has already closed operations in locations including Massachusetts, Virginia, Ontario and Quebec, among the company's North American asset base, which is concentrated in the U.S.
Real estate sales have become common across the telecom sector as providers attempt to cope with a profound slowdown in customer demand since mid-2000.
Canada's largest telecom companies, BCE Inc. and Telus Corp., for example, have each announcing property divestiture programs similar to Nortel's.
Nortel declined to comment.
mlewis@nationalpost.com |
