The staggering demand for Nokia’s first new bond issue in years is testament to the market’s belief in the Finnish tech giant’s transformation over the past two years.
NEW YORK, June 5 (IFR) – Nokia was deluged with more than US$8bn of orders Monday for its first US bond in years, as eager investors bet on the turnaround plans at the world’s former No 1 cell phone company.
The staggering demand allowed the Finnish tech giant to launch the US$1bn deal a massive 35bp-40bp inside initial price thoughts at a final spread of 175bp over US Treasuries on the new five-year and 225bp over for the new 10-year. That roughly translates to yields of 3.5% and 4.4%, compared to an average 4.5% yield on similarly rated bonds in Bank of America Merrill Lynch’s junk bond index. The eight-times coverage – all but unheard of for a junk bond – is testament to the market’s belief in Nokia’s transformation over the past two years.
“It hit a couple of speed bumps last year in terms of revenue growth but the free cashflow story looks promising in 2018 and beyond,” said Greg Zappin, a portfolio manager at Penn Mutual Asset Management. Nokia was once the world’s leading cellphone maker, but it missed the shift to smartphones and sold its handset activities to Microsoft in 2014. Its comeback plans have focused on mobile network equipment, including 5G wireless technology.
The last time it ventured to the US bond market was in April 2009, according to IFR data. But the competitive landscape was very different then – Apple’s iPhone was only in the second year of its life – and Nokia itself was rated investment-grade.
Just three years later, the company was downgraded to junk and is currently rated Ba1/BB+/BB+. But the company is intent on getting back to investment-grade – a message reiterated in talks with investors on Monday – and has reduced debt in recent months. It has spent €3bn to cut leverage as part of a €7bn capital optimization program expected to be completed this year and is also looking to simplify its capital structure.
Nokia Corporation will eventually become the issuer for all of its bonds. Proceeds from the new deal will help refinance more expensive debt issued as far back as the 1990s by Lucent Technologies. The cheaper pricing on the new bonds will reduce interest expenses. Lucent merged with Alcatel in the 2000s before the combined company was taken over by Nokia last year for €15.6bn in an effort to boost scale. “It’s been a story of integration and de-leveraging,” said Zappin.