Nokia Wins Several Credit Rating Upgrades - Analyst Blog

Last week, Nokia Corp. NOK received a shot on the arm as three major credit rating agencies, namely, Standard & Poor's Ratings Services (S&P), Moody's Investor Service and Fitch Ratings upgraded the credit rating of the company.

The rating upgrade came on the back of on three considerations. Firstly, the disinvestment of the loss making Devices and Services division is viewed as a positive. Secondly, anticipated stabilization of the core Network business within the next 12 -18 months despite stiff competition is another positive. Thirdly, the recently declared capital structure optimization program of the company has further encouraged the upgrade. Meanwhile, Nokia also decided to reduce its debt by Euro 2 million by 2016.

S&P raised Nokia's long-term credit rating to “BB” from “B+” and assigned a positive outlook. The company's financial risk profile has also been elevated to "intermediate" from "aggressive." Moody's upgraded Nokia's corporate family rating to Ba2 from B1. The rating agency also raised the rating of the company on a probability of default to Ba2-PD from B1-PD. The outlook on the rating is Stable. Additionally, Fitch Ratings promoted Nokia's debt rating to “BB” from “BB-“.

Last month, Nokia sold its handset business unit to Microsoft Corp. MSFT. Nokia failed to sustain its smartphone business due to cut-throat competition from Apple Inc.'s AAPL iPhones and several innovative smartphones based on the Android software of Google Inc. GOOG. This division has been incurring losses for a long time period.

Despite facing intense competitive pressure, Nokia's core network business is improving steadily. Last year, the Nokia Solutions and Networks(NSN) segment entered into a deal with content delivery network operator, CDNetworks, to accelerate the delivery of mobile content.

Liquid technology is a software solution for network infrastructure that drastically reduces the need for dedicated hardware. NSN also believes that its new Liquid Applications will alter the competitive landscape of the telecom infrastructure gear market by revolutionizing base stations.

Recently, Nokia initiated a Euro 5.0 billion (approximately $6.9 billion) capital restructuring program. The company also intends to start a Euro 1.25 billion share buy-back program and will pay a special dividend of Euro 0.26 per share totaling Euro 1 billion. The remaining Euro 2.75 billion will be utilized to reduce debts.