Credit ratings agency Moody's has placed Nokia on review for a possible downgrade, as a result of the company's €1.7 billion ($2.2 billion) plan to buy out NSN.
Moody's announced it will review Nokia's Ba3 corporate family rating, its probability of default rating and its long-term debt ratings.
The review will focus on Nokia's future policy on how it will treat NSN once it becomes a 100%-owned subsidiary, its liquidity and cash balance following the purchase and its performance and market share in the second quarter.
Nokia this week confirmed plans to acquire Siemens' 50% stake in NSN and turn it into a wholly-owned subsidiary with a new name.
Moody's lead analyst for Nokia Roberto Pozzi said the acquisition will be “credit negative for Nokia, bringing its net cash position close to the minimum net cash levels expected for the Ba3 rating at a time when the group's mobile phone business continues to generate negative free cash flows.”
But Moody's also acknowledged that NSN has asset value and that its financial performance has been improving recently, and noted that Nokia will have an option to list the venture in the medium-to-long term.
Nokia's standalone liquidity would remain satisfactory after the acquisition, and any downgrade would likely to be limited to one notch, the agency said.
While there is currently limited potential for a ratings upgrade, this situation could change if Nokia is able to sustainably improve operating margins above 10%, stabilises its mobile market share and start generating positive free cash flow, Moody's added.