Does Nokia Need a Bailout?

Nokia’s (NYSE:NOK) rate of cash burn may put in jeopardy its ability to repay two outstanding bond issues, one of which is due for repayment of 1.25 billion euros in 2014. The other amounts to 500 million euros and is due in 2019.

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The company has reduced its cash by 2.1 billion euros over the past five quarters, and according to analysts, over the next three quarters, it may consume another 2 billion euros. Some analysts fear that Nokia’s cash hoard of 4.9 billion euros could vanish as early as next year.

If the bond market metrics are anything to go by — the five year CDS quoted an all time high of 749p Friday — the likelihood of Nokia defaulting in the next five years is some 49 percent, according to Gavan Nolan, director of credit research at Markit.

“In our opinion, the company’s ability to repay even its shorter-term 2014 bond could be an issue,” said Société Général credit analyst Juliano Torii.

“Nokia is implementing a decisive action plan to position our company for future growth and success,” spokesman James Etheridge said. “The main focus of these actions is on lowering the company’s costs, improving cash flow and maintaining a strong financial position.”

One hope arises from the newly introduced Windows-based smartphones, of which 46 million are expected to sell by next year, against 20 million this year.

Doubts about Nokia’s ability to climb out of the hole it dug for itself by misreading the smartphone market have given rise to speculation that Microsoft (NASDAQ:MSFT) may be a likely white knight. Given that it already pays Nokia a billion dollars a year to its software on phones, it may chump up more if Nokia’s situation so demands.

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