ABB recovers ground

ABB says the loan will give the company greater financial flexibility Keystone Archive

ABB'S share price has staged a sharp recovery after markets celebrated a $3 billion (SFr5 billion) loan deal.

Barclays Bank, Citigroup and Credit Suisse First Boston all agreed to underwrite the funding for the Swiss-Swedish conglomerate.

The agreement averts a financial crisis for the ABB group, as the loan is considered by some analysts to be crucial for its immediate financing needs.

The news sent shares in ABB surging on Wednesday, up SFr1.50, or 11.9 per cent higher at SFr14.10.

Positive sentiment continued during early trading on Thursday, with a rise of up to SFr0.65, on news of a potential asset sale.

ABB said it was in advanced negotiation over the sale of its structured finance business, which is expected in the third quarter.

“The fear of an immediate collapse in the group and its liquidity problems have receded and it now has time to restructure,” said Beat Piffner, an analyst with Zurich Cantonal Bank.

The indebted power and automation technology firm had originally scheduled the talks with banks last week.

The meeting was postponed after Moody’s rating agency downgraded ABB’s $5 billion of debt securities for the second time in less than a week.

“Viable business”

Analyst Dan Manor at Credit Suisse First Boston said before the loan agreement that there was good reason for approval. “It’s a viable business and the banks want to make sure that it’s going to continue,” he told swissinfo.

“The banks have to negotiate from a position in which ABB does have the money and not the other way around,” he said, explaining that the banks were very exposed to ABB, like any other company at which there was a lot of debt.

“You on the one hand want to help them. At the same time you want to get a premium for whatever risk you are taking…so the banks are and aren’t in the driving seat,” he added.

“Ongoing challenges”

Moody’s said the decision to cut ABB’s senior debt rating to Baa2 was made because of “ongoing challenges facing ABB as a result of its high leverage and modest operating cash flow amid a weak operating environment.”

The agency said it expected ABB’s cashflow to be “deeply negative” in the coming months due to $2 million of maturing debt and commercial paper, coupled with seasonal cash flow patterns.

ABB had until a short time ago said it had ample liquidity to meet its short-term obligations. However, the group reported on March 21 it was going to draw on the $3 billion credit facility in anticipation of a tightening of the commercial paper market, its traditional source of short-term liquidity.

The group’s chief financial officer, Peter Voser, said in a statement that the increase in liquidity would give ABB “financial flexibility”.

“We will also lower the proportion of short-term debt to long-term debt and work to meet our strategic goal of reducing net debt by $1.5 billion by the end of the year,” he commented.

Watch list

The decision led Standard and Poor’s, another rating agency that had been more optimistic about ABB, to place group debt on a watch list because of what was termed the “increased uncertainties surrounding its future funding”.

Credit Suisse First Boston and Citigroup are the lead banks in a syndicate of financial institutions that arranged the $3 billion credit facility last December.

The news in February that ABB made a loss of $691 million for 2001 was overshadowed by the simultaneous announcement that two former CEOs, Percy Barnevik and Göran Lindahl, had received SFr233 million in pension benefits.

Following a public outcry at the figures, the two Swedes reached an agreement with ABB to pay back SFr137 million from the benefits packages they had received.

by Robert Brookes with agencies