Ericsson's rating downgraded

  • 2002-07-25

The U.S. rating agency Standard and Poor's said July 22 it had lowered its long-term corporate credit rating on Swedish telecom equipment maker Ericsson to just a notch above junk status following release of the company's second-quarter earnings report.

The rating was lowered from BBB to BBB-.

At the same time, the agency placed all Ericsson ratings on CreditWatch with negative implications, reflecting the continued deterioration in the group's operating environment and credit profile.

"The rating actions reflect the ongoing contraction in Ericsson's core mobile systems market and a further sharp decline in the company's order book in the second quarter of 2002," said Peter Kernan, head of Standard and Poor's European telecoms group.

"The difficult trading conditions have resulted in an increase in Ericsson's negative cash flow from operating activities in the second quarter and a further weakening in Ericsson's credit profile," he said.

Ericsson, which reported a net loss of 7.2 billion kronor ($770 million) in the first six months of the year, said last week it hoped to return to operating profitability "at some point" in 2003.

The company at the same time announced a new share issue at 3.80 kronor, a steep discount from the 14.50 closing price in Stockholm the previous day and the 230 kronor at which the share traded during the high-tech boom in 2000.

The stock plunged 17.9 percent on July 19 to 11.90 kronor but climbed back up to 12 kronor on July 22.