NEW YORK—Concerns about “ongoing operating losses and poor trading conditions” caused Standard & Poor’s Corp. May 16 to lower L.M. Ericsson’s investment-grade credit rating a notch to BBB/A-3 from BBB-plus/A-3.
“Although Ericsson continues to have a strong and sustainable market position in its key wireless infrastructure business, market conditions continue to deteriorate,” said Peter Kernan, the London-based head of S&P’s European telecoms group.
“Nevertheless, the long-term fundamentals of Ericsson’s markets are considered to be favorable, and the group is expected to continue to be one of the world’s leading providers of telecommunications infrastructure.”
In its rating downgrade announcement, Standard & Poor’s noted, “Ericsson will convene an extraordinary general meeting of shareholders June 6 to authorize the board (of directors) to launch a rights offering.” The offering, which could raise nearly $3 billion in new equity for Ericsson, will allow its existing shareholders to buy newly issued common stock at a discount to prices later charged the general public.
“To maintain the current ratings, Ericsson is expected to raise about $2.95 billion of new equity successfully, execute its restructuring program successfully and turn around the performance of its infrastructure businesses. This should allow the group to return to profitability in 2003,” Kernan said.
