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Technology Stocks : Nokia (NOK) -- Ignore unavailable to you. Want to Upgrade?

To: JohnG who wrote (10304)	4/4/2001 1:05:51 PM
From: Eric L	Read Replies (1) \| Respond to of 34857

re: Comments on Vendor Financing of 3G Carriers >> Analysts See Nokia's 3G Financing Deal As Positive Sign Tessa Walsh Kirstin Ridley Reuters 03 April 2001 The world's top telecoms equipment suppliers could be asked to stump up as much as 40 billion euros in financing as debt-laden telecoms operators struggle for funds to develop high speed, new-generation mobile phone networks. Some analysts said the battered industry should take heart after Finland's Nokia, Japan's NEC and Germany's Siemens agreed to a 777 million pound ($1.1 billion) deal to help fund Hutchison 3G's new British network. "This is quite a telling deal because it's Hutchison, it's for a new entrant, it's a deal that has been done with one of the leaders in the industry and I think all of these things combine to suggest that the industry is much more confident about this than the financial markets," said one analyst. "Nokia and the others didn't have to do this deal...So they must feel very confident about a new entrant in a market where you've got some of the toughest competitors already incumbent." Nokia spokeswoman Arja Suominen told Reuters "We look at the long-term customer relationship, the country and the market they are in ... on a very selective basis. It is not a change in policy". Hutchison 3G, which links Hong Kong's Hutchison Whampoa, Japan's NTT DoCoMo and Dutch KPN Telecom , said it had raised a total of 3.6 billion pounds from a combination of banks, vendor finance deals and shareholders. In one of the first major vendor finance deals, where suppliers turn banks to help win contracts, Nokia is pledging a 460 million pound loan for a telecoms new entrant which faces heavyweight rivals: Vodafone, BT, France Telecom's Orange and Deutsche Telekom. European telecoms operators, which have spent around 120 billion euros ($105 billion) to date on new-generation mobile licences, have seen shares dive over 60 percent since last March amid mounting investor fears they have overstretched themselves. Faced with the costs of third-generation UMTS (Universal Mobile Telecommunications System) networks, estimated by some analysts at around 75 billion euros for western Europe alone, operators had been expected to tap suppliers where possible. But only those considered survivors are expected to clinch deals. "Total vendor exposure could be 40 billion euros - but the amount of new money available for UMTS could be nearer 10-15 billion euros," one senior banker said. HUTCHISON 3G SCOOPS TO DEAL TO DATE The Hutchison 3G vendor package is the largest to date for a third generation startup project, showing vendors are back in the lending game - if on a selective basis. Vendor finance was initially designed to take pressure off the bank market, which shut up shop after being spooked by regulatory interest in telecom exposure. Equipment firms initially offered favourable financing terms to win contracts, but were swamped by requests for financing by debt-laden telecom operators which have been unable to tap a normally supportive syndicated loan market. But a quick appreciation of balance sheet constraints after totting up potential global exposure for key clients led vendors to toughen up their lending criteria to reflect its scarcity, although delays in 3G rollout have taken some of the pressure off. "There was a nervousness about how the quantum of debt would affect the balance sheet but there's been a slowdown in requests as the larger operators delay 3G deployment and look to GPRS as an interim substitute," a banker said. Hutchison's vendor deal was struck on the same terms and conditions as its bank loan, according to arrangers JP Morgan, HSBC and WestLB, and covers 150 percent of the equipment value. The three-year loan is priced at 175 basis points over LIBOR in year one, rising to 200 b.p. in years two and three. The vendors will be on the same footing as the bank lenders, and Hutchison 3G will only be able to draw on the vendor deal at the same pace as it can on its bank facility. However, the bank facility does not fully fund Hutchison beyond two and a half years. And to extend the deal to three years, the company must still demonstrate certainty of funds to extend it to three years and beyond. Bankers said a delay in the expected start of 3G services such as fast mobile Internet, data, music and video until around 2002/3 was helping to appease concerns that operators would quickly shift mountains of debt on to suppliers' balance sheets. One noted that Sweden's Ericsson, the world's top telecoms equipment maker, could hold 6-10 billion euros in vendor financing on its balance sheet - although it made more sense to spread the risk. "It doesn't make sense not to spread the risk, although this is difficult while the telecom operators are hitting the loan market for cash," the banker said. VENDORS PLAY HARDBALL While telecoms operators are clamouring for deals, vendors have also seen shares slump and are under investor pressure to ensure that they spread the risk and offer sustainable terms. "There has been a sea-change as the large telecom operators have realised that they can't cram non-market terms down the vendors throats, as the vendors won't hold the debt forever and it has to be structured to clear the bank market, where it will end up," one banker said. Because syndicated loans and vendor financing deals share the same investor base, vendors tends to hold the debt on balance sheets for a set period of time before recycling it back to the bank market to avoid jeopardising subsequent loans. In Hutchison's case, Nokia, NEC and Siemens are only allowed to sell half the debt in 18 months time. The other half is subject to a mandatory prepayment. << - Eric -