Alcatel to take hit on Flag Telecom debt

CIOL Bureau
New Update

PARIS: Equipment supplier Alcatel on Wednesday reported an exposure of just

over 100 million euros to debt-laden telecoms carrier Flag Telecom and said it

would book provisions for the bulk of that amount in the first quarter.


"Our global exposure (to Flag Telecom) is a little bit more than 100

million euros. In our annual results presentation we already said that we had an

exposure to (such) carriers in the low to mid nine-figure range," an

Alcatel spokesman said.

"We will largely provision for this in our first quarter results,"

he added, referring to the part of the exposure relating purely to Flag Telecom.

Flag Telecom, which sells bandwidth capacity to telecom operators, has bought

undersea cables from Alcatel but a deepening financial crisis at the firm has

raised doubts over whether it can pay for them.


The exposure is relatively small for a global player such as Alcatel and had

little impact on its shares, but underscores resurgent market worries about the

heavily indebted tech sector.

Alcatel shares fell 0.7 per cent to 16.13 euros but dealers said the share

was dragged lower by general malaise over technology stocks after the Nasdaq

fell sharply on Tuesday and a major US brokerage voiced concern on world famous

tech stocks.

The DJ Stoxx European tech index shed 1.2 per cent.


D for default

Flag Telecom said on Monday it had decided to skip interest payments due on
March 30 on two note issues, leading its auditor to warn it had

"substantial doubt" whether the operator could stay in business.

Its mounting debt problems and the auditor's warning prompted credit ratings

agency Standard & Poor's to downgrade Flag Telecom to a rock-bottom

"D" status from CCC+ on Tuesday. A "D" rating -- for default

-- kicks in when a company stops paying the coupon payment on its notes or files

for bankruptcy.

The harsh price of over-expansion during the investment bubble in technology,

media and telecoms stocks came to the fore again on Wednesday when S&P also

cut UK cable firm NTL to "D".

NTL's bondholders forced Britain's biggest cable television operator to

default on a key interest payment on Monday, opening the way for the loss-making

firm to hand over a stake to one of its main rivals.