News that Canadian telecommunications giant Nortel has filed for creditor protection has raised fears for the future of 300 jobs at the company’s Galway facility.
The Toronto-based multinational announced yesterday that is it seeking creditor protection in the US, Canada, Europe, the Middle East, and Asia. The move came one day before it was due to make a payment of US$107 million in interest on outstanding loans which are believed to be close to US $4billion.
Commentators were pessimistic about the company’s future in the North American press last night (Wednesday ) , with Benoit Lalonde, vice president of fixed income at Canada’s Laurentian Bank Securities, quoted as describing the company as “a corpse awaiting burial”.
However the company has pointed out that it has sufficient cash in hand to fund ongoing operations, and day to day operations are expected to continue as normal.
The company stated that its affiliates in Asia, the Caribbean, and Latin America are not included in the proceedings.
“This action will enable the company to undertake a comprehensive business and financial restructuring that will proactively address the company's current challenges and ultimately strengthen the business to ensure its long-term viability,” the company said in a statement yesterday. “After full consideration of alternatives, and in light of the current adverse economic environment, this step is believed to be in the best long-term interests of Nortel and its stakeholders.
“Nortel intends to emerge from this process as a more focused, financially sound, and competitive company. This is a step towards a global reorganisation of Nortel and the company acted now because we have sufficient liquidity to both run our operations and restructure our business.”
Nortel saw a dramatic drop in its shares this week with shares dropping to just US$0.32 at one point. It is understood to have sought restrictions on trading in its common shares for investors with a stake of more than 4.75 per cent, as part of its application to the courts.
The Canadian company said on Wednesday that the "global financial crisis and recession" have sabotaged the turnaround effort it had started in 2005, pushing it to file for court shelter from its creditors.
Now, as it tries to stretch its US$2.4 billion in cash to carry it through the court process and a persistently tough operating climate, Nortel's widely expected asset sales will have to take place at an economically inopportune time, to say the least.
"They may be forced to sell assets to reorganize, but they're not going to get much for them," said Ed Snyder, principal analyst at Charter Equity Research. "It's a tough position to be in."
He added potential buyers could be "picking over the pieces rather than buying the whole".
What is most likely is that Nortel will be reshaped and scaled down as it restructures under court protection.