Debt-ridden Marconi on the brink

FORMER technology titan Marconi plunged deeper into trouble as it admitted that debt refinancing talks with its banks had collapsed. The company, burdened with £4bn in debt split between longer-term bonds and a 31-strong bank syndicate headed by Barclays and HSBC, said it had been unable to agree terms with its main lenders for extending its current facilities.

The shares fell to a record low of 5 1/2p in frenzied trading as City speculators stampeded to dump stock, leaving the one-time tech-sector star valued at just £150m. The group was worth £34bn less than two years ago. The shares later recovered to 9.55p, down 8.45p. 'It looks like the end of the road for Marconi,' said one City dealer.

The failure to reach agreement with the banks raises the prospect of Marconi's £2.6bn of outstanding loans being called in when the facility matures in about a year, and that could force the company out of business. A disposals programme aims to cut the group's debt to between £2.7bn and £3.2bn by the end of this month. Marconi, under chief executive Mike Parton, has about £1bn in cash.

'In the light of the group's revised view of the extended market downturn, it is no longer believed that the refinancing proposal provides it with an appropriate capital structure,' the company said. 'Accordingly, Marconi has decided that it is unable to enter into the proposed new bank facility. The bank co-ordinators have indicated that the banks reserve all their rights under the existing facilities.' Combined with an admission that overall demand for its fibre optic and telecoms equipment has continued to deteriorate, analysts said prospects for the group were bleak.

Marconi said late in the session that its banks were 'supportive in principle' to continue working with the group as it tried to renegotiate its financing. But it had agreed to cancel the undrawn portion of its syndicated loan facility. Marconi was also placing 'on demand' the £2.2bn drawn portion of the facility.

'Marconi and its banks consider that the cancellation of the undrawn commitments was appropriate due to Marconi's cash position arising from its successful disposal programme,' the group added.

Marconi said it was devising a new business plan, which it would present to the banks in the next few weeks, raising the prospect of a further restructuring. Analysts believe some sort of debt-for-equity swap now appears the most likely option.

The prospects of a buyer moving in from a global telecoms equipment industry mired in debt and hard hit by the tech-sector slump is also thought to unlikely, particularly as Marconi said it expected the global downturn to 'persist beyond the financial year to March 2003, longer than previously anticipated'.

Marconi said it expected some of its normal seasonal improvement in fourth-quarter results to 31 March. There was a third-quarter operating loss of £130m on sales of £1.14bn.