Posted on 02/15/2003 8:47:49 AM PST by Loyalist
Nortel gets $1B government boost
Export Development Canada offers line of credit to bolster stock price
Nortel Networks Corp., still struggling to stabilize its finances during a protracted slump, has received a billion-dollar safety net from the federal government.
The Brampton-based maker of telephone gear revealed yesterday that Export Development Canada -- a controversial lending agency -- has agreed to provide the company with a credit line worth as much as $750 million U.S.
Nortel also provided details of a plan to cancel some 3.8 billion outstanding shares. At its annual general meeting in April, the firm plans to ask shareholders to approve a reverse stock split ranging from five to 10 Nortel shares for one new share of the company.
The move is designed to bolster Nortel's stock price, and avoid losing its listing on the New York Stock Exchange.
On Wall Street, shares of Nortel rose eight cents at the close of trading yesterday to $2.31 U.S. On the Toronto Stock Exchange, shares closed at $3.53, up 11 cents. The company's shares have fallen 60 per cent in the past year.
For Nortel, the timing of the financing deal couldn't be better. After two years of staggering declines, the company recently reported its first quarter of sequential gains in sales of optical communications systems -- a key line of business.
The gains suggest Nortel is on track to return to profitability by June.
The company's workforce now stands at about 36,000, with about 6,000 of those jobs in Ottawa.
Nortel began seeking government financing last year, after a major debt-rating agency downgraded its credit rating to junk status. Shortly after that, the company cancelled two major credit lines worth a total of $2.67 billion U.S.
The enormous cost of laying off 60,000 employees -- including about $1 billion U.S. in outstanding restructuring costs -- forced the company to breach the terms of its financing agreements with lenders.
While the credit lines were never tapped, they were a valuable cushion against future crises. Yesterday's announcement does little to dispel the perception that Nortel's bankers remain nervous, leaving the company with no choice but to seek other banking support.
The company still has access to a separate $750-million U.S. bank loan that expires in April 2005. It can also draw on cash reserves worth about $4.1 billion U.S.
Over the past two years, Export Development Canada has increased aid to Canadian companies hit hard by recession. Of the agency's $21-billion loans portfolio, about $10 billion were granted to customers of Nortel as well as Montreal-based aerospace exporter, Bombardier Inc. The grants enabled the customer firms to buy products from the two companies.
At the same time, the Crown corporation has drawn criticism for perpetuating a culture of secrecy and lack of accountability. The auditor general has repeatedly given the agency a failing grade for its refusal to disclose details of projects it supports.
In response, the agency has embarked on reforms aimed at making it more open and accountable to the public.
© Copyright 2003 Ottawa Citizen
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