21 June 2002 -- Further to its preliminary announcement on 16 May, London-based Marconi - which supplies optical networks, broadband routing and switching and broadband access technologies and services - says it continues to make good progress in its three-way restructuring discussions with its syndicate banks and an Ad Hoc Committee of its bondholders towards a consensual recapitalisation, which it hopes to finalise in early July.
This is likely to involve a debt-for-equity swap for a significant proportion of Marconi's GBP4.3bn gross financial indebtedness, which includes GBP2.2bn in syndicated loans and GBP1.8bn in bonds. The bonds are already trading at 30% of their face value, while the banks are being asked to accept that they will not get all of their GBP2.2bn back as new shares.
The debt-for-equity swap would cut interest payments and support Marconi's credit rating. "We are confident that our banks and bondholders will continue to be supportive during the process and that Marconi will emerge from this process with a significantly improved balance sheet," said chief executive Mike Parton.
However, the board expects that the issue of new shares will lead to a "very substantial dilution in value for existing equity holders," since lenders would become the controlling majority owners. Marconi's market value has already fallen by over 99% from GBP35bn in 1999 to about GBP140m.
At the centre of talks with lenders is a revised business plan, which investors had expected to be issued in May but was delayed as debt talks progressed.
In the year to end-March Marconi reported a pre-tax loss of GBP5.7bn and a 34% drop in sales, forcing it to cut a quarter of its staff. At the end of March order backlog in Marconi's core business was GBP1.7bn (down 19% on a year ago). It expects no pick-up in the year to March 2003.
Marconi has been selling non-core assets, raising GBP1.5bn in the last six months. By end-September it will float Marconi Mobile's Strategic Communications business in Milan, which makes secure communications systems for the defence and security industries, in an initial public offering which could raise about the same as its annual sales of GBP300m.
* Marconi plc expects to receive notice from Nasdaq that its shares, which currently trade in the form of American Depositary Receipts (ADRs), will be delisted because they no longer meet the minimum price of USD1. Marconi's ADRs will be traded on the Over The Counter Bulletin Board (OTC BB). Its shares will continue to trade on the London Stock Exchange.