Marconi falls to penny stock status after failure to agree refinancing

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Marconi, the troubled telecoms equipment maker, yesterday warned it had failed to sign off a vital new refinancing package with its banks, while cancelling about half of its current €7.5bn (£5.3bn) loan facility.

But despite the move, Marconi said both its leading banks, Barclays and HSBC, had confirmed they were "supportive in principle" of continuing to negotiate a refinancing proposal that would be "acceptable to all stakeholders".

Shares in the company slumped 47 per cent, or 8.45p, to 9.55p as investors fretted Marconi would be forced out of business if it failed to conclude a new refinancing deal. The fall in the price left Marconi as a penny stock for the first time.

The company warned market conditions had worsened and would remain tough beyond March 2003, longer than it had thought.

Consequently, it backed out of a refinancing proposal put forward by a syndicate of 31 banks, saying it did not think the deal would give it an "appropriate" capital structure. Marconi has been in crisis talks with its banks since December.

Marconi is understood to have thought that it would not have been left with any headroom to cut its debt, even though it would have been able to meet the interest payments on the proposed new facility.

The company said late yesterday that it had agreed to cancel an undrawn €3bn loan facility as well as the undrawn portion of its €4.5bn loan, saying it and its banks felt it "appropriate" given the cash Marconi had amassed from selling assets.

While Marconi has spent some of that cash buying back bonds, the remaining estimated £1bn of cash would be sufficient to keep the firm afloat for another year, analysts said.

Had the firm not used its €3bn loan by May of this year, the facility would have lapsed. Of its €4.5bn loan, which expires in March of next year, Marconi had drawn about £2.2bn, which will now be placed on demand.

Despite the blow, analysts were divided on the company's future with some suggesting it could stage a comeback by signing a new bank deal and selling assets, including its stake in Easynet. They also floated the possibility of a takeover, possibly from the US company Cisco Systems, as well as a rescue proposal by a consortium of venture capitalists.

"It's not the end of the road obviously but it doesn't read very nicely especially to a nervous market," said Michael Blogg, an analyst at Charterhouse Securities. "The plug isn't going to be pulled tomorrow, that's not the issue. The issue is how they finance the business going forward from spring next year onwards."

Others were more sceptical, suggesting that even if the firm did manage a restructuring, it would still be left with the problem of driving sales of its "antiquated technologies". One analyst feared potential buyers for the company might not be interested because Marconi has "already sold off the family silver".

Marconi said it would devise a new business plan in the coming weeks while continuing talks with its banks and assessing "further refinancing options".

The company, which is due to update investors on 25 April, expected its fourth-quarter results to be in line with guidance, predicting a "seasonal uplift" in sales from the third quarter. It also expected its net debt at the end of March to be between its target of £2.7bn to £3.2bn and confirmed it was on track to reduce its operating cost base to an annualised run-rate of £1bn.