ABB draws on credit facility

ABB denies it is facing a cash crunch Keystone Archive

The Swiss-Swedish engineering giant, ABB, has draw all of its $3 billion (SFr5 billion) credit line to pay for commercial paper it can no longer roll over.

The move is to cover commercial paper maturing in 2002, leaving about $1 billion (SFr1.66 billion) to add to cash reserves. It comes only a week after the company publicly acknowledged that it was facing funding difficulties in the commercial paper market.

Its borrowings in that market jumped from $1.9 billion to $3.3 billion last year.

ABB has been counting on economic recovery as well as revenues from planned asset sales to shore up its weak finances. But this is far from reassuring to investors, who took the news badly.

Drop in share value

Its shares on Thursday closed down 5.1 per cent at SFr13.05. They have lost 14 per cent so far this year after a 63 per cent drop in 2001.

“It is definitely not a good sign,” said Claude Zehnder, an analyst at the Zurich Cantonal Bank. “It looks like they have liquidity problems and they now need this bank credit to pay back commercial paper.”

But ABB’s chief financial officer since the beginning of the month, Peter Voser, insisted that ABB was not facing a cash crunch. “There is no liquidity crisis,” he said. “We are replacing one facility with another.”

Voser added that ABB had $5 billion in cash at the end of February, as well as marketable securities. Some $2 billion of that was available immediately, while the rest was on a notice period.

Commercial paper market

ABB, along with other companies, has been shut out of the commercial paper market in recent weeks as investors have become increasingly nervous about its stretched financial ratios and its inability to cap its unquantified exposure to growing US asbestos insurance claims.

The company is also suffering from the more aggressive approach being taken by the credit rating agencies. They have been heavily criticised for not giving more advance warning of the buildup in problems which led to the collapse of Enron, the American energy giant.

swissinfo with agencies