Banks squeeze troubled Marconi

TELECOMS equipment group Marconi has run into stiff opposition from its bankers over plans for a bond buyback to bring its debts under control.

The first cracks have begun to appear in the international consortium that has already lent the group £2.1bn, even as members Barclays and HSBC try to arrange long-term financing to avoid a cash crunch in 2003.

The banks met on Monday after Friday's meeting with Marconi. A source said: 'One or two of the banks want to play hardball with the company, though there is no question of pulling the plug.'

Marconi, which has just cut net debt from £4.3bn to £3.5bn through a disposal, could slash it to £2.3bn by borrowing to buy back its bonds. This would not simply be robbing Peter to pay Paul, as the bonds trade for as little as 40% of face value. Paying 70% for them would cut debt to £2.9bn.

The banks, which have lent £2.1bn, do not want to put up more for this purpose. 'We would not support that, and we wouldn't want all the disposal money used to provide an exit for bondholders either,' said one banker.

They may have to agree. The small print on Marconi's US bonds could prevent the banks securing their loans against the company's assets, reports Merrill Lynch analyst Atish Kakodkar.