Nokia to reduce debt by $2.8 billion by mid-2016

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Flush with funds from the sale of its handset business to Microsoft, Nokia plans to reduce its debt by $2.8 billion by the second quarter of 2016, a move that will save the Finish telecom giant about $138 million in interest costs. The firm also aims to repurchase shares worth $1.72 billion over the next two years. Last month, Nokia completed the sale of substantially all of its Devices and services business to the US-based software giant Microsoft for more than $7.2 billion. This will be Microsoft’s finish entity -Microsoft Mobile Oy.

Post Microsoft deal, Nokia has three business segments, Networks (network infrastructure), HERE (location intelligence) and Technologies (technology development and intellectual property rights activities). In its annual report, Nokia said, “It plans to reduce interest bearing debt by approximately euro 2 billion by the end of the second quarter of 2016. Once complete, the debt reduction is expected to result in annual run rate savings of at least euro 100 million related to recurring interest costs.” The company said lowering the gross debt level is aligned with its target to return to being an investment grade company. “Nokia intends to reduce interest bearing debt by utilizing applicable maturity dates, call dates or other terms allowing early redemption or retirement of debt or by making offers to repurchase debt in the open market,” it added.

On the stock repurchase program, the firm said, “Nokia Board also proposes a share repurchase authorization to facilitate euro 1.25 billion of planned share repurchases over two years.” Nokia plans to repurchase up to 370 million shares, which corresponds to less than 10 percent of the company’s shares outstanding. The term of repurchase authorization is for the maximum of 18 months under Finnish regulations and is expected to be re-proposed by the Nokia Board at the Annual General Meeting in 2015. “The shares are expected to be cancelled. The shares may be repurchased in the open market, in privately negotiated transactions, through the use of derivative instruments, or through a tender offer made to all shareholders on equal terms,” it added.

Both the initiatives are part of Nokia’s euro 5 billion (about $ 6.9 billion) capital structure optimization program. The program aims to “improve the efficiency of Nokia’s capital structure” with focus on recommencing ordinary dividends, distributing deemed excess capital to shareholders, and reducing interest bearing debt. It includes euro 3 billion of cash return to shareholders through dividends and share repurchases and euro 2 billion of debt reduction, over the next two years.