Nortel may face bankruptcy: Analyst
By Jim Donnelly, Ottawa Business Journal Staff
Thu, Nov 13, 2008 11:00 AM EST
It seems one market analyst is intent on putting a whole new spin on the phrase 'zero means zero.'
RBC Capital Markets' Mark Sue, in fact, on Thursday projected Nortel Networks Corp.'s (TSX:NT) price target as just that – zero. The company, which has $2.65 billion (all figures in U.S. dollars) in cash on hand, is said to be burning through money at maximum velocity. Thanks to the crippled capital markets the company is facing severe liquidity issues, said Mr. Sue.
"The world moved on while Nortel was stuck in restructuring mode, and the lack of financial flexibility means Nortel has to rely on asset sales to fund future operations," the analyst said in a note to clients, adding that without government help the company could face bankruptcy sooner rather than later.
With Mr. Sue's projected burn rate of $800 million next year, cash reserves at the company could dwindle as low as $1.6 billion – not good news when coupled with operating costs of $1 billion and $500 million for Chinese joint ventures.
Mr. Sue added that Nortel's pension, worth $1.1 billion at the end of last year, could face more than $500 million in liabilities tied to its metro ethernet networks division.
Despite the dreary outlook Nortel's shares on the TSX had gained nearly 19 per cent, to 82 cents, as of 11:53 a.m. Eastern time on Thursday.
By Jim Donnelly, Ottawa Business Journal Staff
Thu, Nov 13, 2008 11:00 AM EST
It seems one market analyst is intent on putting a whole new spin on the phrase 'zero means zero.'
RBC Capital Markets' Mark Sue, in fact, on Thursday projected Nortel Networks Corp.'s (TSX:NT) price target as just that – zero. The company, which has $2.65 billion (all figures in U.S. dollars) in cash on hand, is said to be burning through money at maximum velocity. Thanks to the crippled capital markets the company is facing severe liquidity issues, said Mr. Sue.
"The world moved on while Nortel was stuck in restructuring mode, and the lack of financial flexibility means Nortel has to rely on asset sales to fund future operations," the analyst said in a note to clients, adding that without government help the company could face bankruptcy sooner rather than later.
With Mr. Sue's projected burn rate of $800 million next year, cash reserves at the company could dwindle as low as $1.6 billion – not good news when coupled with operating costs of $1 billion and $500 million for Chinese joint ventures.
Mr. Sue added that Nortel's pension, worth $1.1 billion at the end of last year, could face more than $500 million in liabilities tied to its metro ethernet networks division.
Despite the dreary outlook Nortel's shares on the TSX had gained nearly 19 per cent, to 82 cents, as of 11:53 a.m. Eastern time on Thursday.
