Bankruptcy on cards for Nortel

Struggling Canadian telecommunications vendor, Nortel, has sought legal advice for a possible filing of bankruptcy, according to reports.

  Nortel shares fell yesterday to a mere US$0.40 each, down from US$99 in 2000. The Toronto-based company’s market value stands at only US$190 million.

Analysts say bankruptcy is a likely possibility taking into account the company’s continuing losses, increasing debt load and the lack of interest in the sale of its Metro Ethernet Networks unit, which includes its optical and carrier ethernet technology.

“Considering the worsening macro environment, Nortel’s challenged industry position, and concerns related to liquidity while the capital markets are basically closed, we think bankruptcy is a distinct possibility down the road,” RBC Capital Markets analyst Mark Sue commented.

“Asset sales couldn’t have come at a worse time, and due to Nortel’s distressed situation, potential bidders for the company’s Metro Ethernet assets may offer subsequently distressed prices,” Sue added.

In the quarter ending September 30, the vendor endured its largest quarterly loss in seven years amounting to US$3.413 billion, from a loss of US$113 million in the previous quarter and a profit of US$27 million a year ago. It also announced redundancies of 1,300 positions, equating to five per cent of its global workforce.

A spokesperson from Nortel said the company has no immediate plans to file for bankruptcy, but has sought legal advice to “chart a way forward”.

Shares nosedived by 23 per cent to US$0.40 per share yesterday, valuing the multinational company of 30,000 staff at only US$190 million. Eight years ago, shares were worth as much as C$124 (US$99).