Marconi set for £4.3bn debt deal

MARCONI today indicated that it was on the verge of striking a £4.3bn settlement with its creditors and confirmed officially for the first time that the deal would centre on a controversial debt-for-equity swap.

Shares in the stricken telecoms group fell 1.6p to a record low of 4.1p before recovering partially to 5.05p, as the market digested the fact that the highly dilutive nature of the agreement will make existing shareholders' stock next to worthless.

It is understood that the deal, which could lead to Marconi handing over up to £1bn in cash, could be sealed as early as next month.

Some banks and bondholders are believed to have been strongly opposed to a massive debt-for-equity deal, looking instead at other ways of forcing Marconi to repay more of the money in cash, including the sale of further assets. But today's announcement from the company suggests they are not going to get their way. 'The process is likely to involve a debt-for-equity swap for a significant portion of Marconi's £4.3bn debt,' it said.

It is also expected that the banks and bondholders will have to absorb some of the pain by writing off part of the debt in the settlement. The company said today that it expected the falling share price would result in its American depositary receipts being de-listed from Nasdaq, the US technology exchange, leaving them to be traded on an over-the-counter basis. The ADRs were at 19 cents on Wednesday, well below the $1 threshold at which Nasdaq delists its stocks.

'We are confident our banks and bondholders will continue to be supportive during the (negotiating) process,' said Marconi chief executive Mike Parton.

The company has £1.3bn in cash, £850m of which has been set aside as a source of comfort to the creditors while the reconstruction talks have been under way. It is believed that at least this much, and possibly some of the remaining cash, will be handed over as part of the deal. Some debt is almost certain to be left in place although it is thought that this will not be more than £1bn.

Marconi, which was crippled by its debt load and plunging demand for telecoms equipment, has raised about £1.8bn from the sale of non-core assets. Last month it sought to beef up its debt-negotiating team with the appointment to its board of Allen Thomas, who has a long record in restructuring cash-strapped companies.