ABB wins credit lifeline from banks
Electrical engineering group, ABB, has won a $1.5 billion credit line from a group of 20 banks to help keep the firm afloat during a painful restructuring.
The Swiss-Swedish firm is struggling to cut a debt mountain of SFr9 billion as it tries to settle asbestos liabilities in the United States.
The new credit facility will replace a $3 billion (SFr2.4 billion) pact that expired on Tuesday, and which was put in place in March when ABB narrowly avoided a cash crunch.
ABB said on Wednesday that it had arranged the new $1.5 billion standby credit facility to cover the company’s liquidity needs for 2003 and 2004.
“The agreement… allows us to implement our programme to lower our cost base, focus on core businesses and achieve the best value from our divestments,” chief financial officer Peter Voser said.
The facility was secured against assets, including the Oil, Gas and Petrochemicals division which ABB will sell in 2003. The revenues will be used to pay back creditors, including banks.
Analysts say revenues from recent asset sales are providing sufficient cash for the first few months of 2003 but that ABB may need to draw on the new credit facility after that.
The lead banks on the new lending pact are Credit Suisse Group, Citigroup, Barclays, and HypoVereinsbank. They are expected to offer ABB a one-year credit line with the option to extend it for a further year.
Restructuring
The company – once seen as Europe’s answer to General Electric – is in the process of restructuring itself to focus on power technology and automation products.
It has already sold off most of its financing activities to General Electric Commercial Finance (for $2.3 billion), as well as its energy metering activities to Ruhrgas of Germany. In 2003, it plans to sell its oil, gas and petrochemicals division.
The sell-offs, along with planned redundancies, will cut its workforce by a third to 100,000 from 146,000 at present.
If the cost-cutting programme is successful, the company’s net debt could fall to $2.6 billion by year-end, still well above its equity base of $2 billion.
Asbestos liabilities
But asbestos claims are still weighing heavily on the company. It has set aside $1.1 billion to cover liabilities at its Combustion Engineering subsidiary in the US, which is in the process of filing for Chapter 11 bankruptcy protection.
A lawyer representing future claimants in the Chapter 11 process, David Austern, told Reuters news agency that the provisions may not be enough.
He added that an agreement could be reached by the end of the year.
swissinfo with agencies
The new credit line replaces a $3 billion pact that expired on Tuesday.
ABB’s total debt is SFr9 billion.
ABB is to cut its workforce by a third to 100,000 from 146,000.
If restructuring plans are successful, ABB’s net debt could drop to $2.6 billion by year-end.
The company issued a profit warning in November for 2002 and cut earning targets for the next three years.
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