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Moody's downgrades Ericsson to junk status, shares fall
May 3, 2017 / 10:47 AM / 3 months ago

Moody's downgrades Ericsson to junk status, shares fall

2 Min Read

STOCKHOLM, May 3 (Reuters) - Credit rating firm Moody's downgraded mobile telecom equipment maker Ericsson to non-investment grade on Wednesday, citing a sluggish outlook for earnings and cash flow in 2017 and 2018, sending its share more than 2 percent lower.

Facing shrinking markets, tough competition, restructuring costs and provisions, Ericsson reported a quarterly operating loss of 12.3 billion crowns ($1.39 bln) last month, and said it would intensify efforts to cut costs.

Moody's said the Swedish firm's declining operating cash flow and restructuring charges were likely to continue to erode Ericsson's key credit metrics over the coming years.

It cut its credit rating to Ba1, a rating below investment grade and often called junk status in market parlance, which means obligations are "judged to be speculative and are subject to substantial credit risk".

Ericsson shares were down 2.4 percent by 1038 GMT, underperforming a 0.8 percent dip in the European technology index.

"It's interesting that Moody's cuts to non-investment grade despite the fact that Ericsson has net cash, it must mean that Moody's has a poor view for Ericsson's earnings going forward," said Inge Heydorn, fund manager at Sentat Asset Management which has a short position in Ericsson shares.

An Ericsson spokesman said the firm did not expect the downgrade to have any impact on costs for corporate bonds and loans that it currently has.

Ericsson Chief Financial Officer Carl Mellander told Reuters in January that concern over its credit rating was one of the factors behind its decision to cut its 2016 dividend by 73 percent and that maintaining an investment grade rating was important for the company.

Credit rating firm Fitch also downgraded Ericsson last week, to 'BBB' with a negative outlook, a rating that is still investment grade.

In October last year, Moody's cut Ericsson's rating to Baa3, and said it was on review for further downgrade.

$1 = 8.8180 Swedish crowns Reporting by Olof Swahnberg and Helena Soderpalm; editing by Niklas Pollard and Susan Thomas

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