ABB, the Swiss-Swedish engineering group rocked by fears of insolvency, sought to restore investor confidence yesterday by agreeing to step up a cost-cutting programme and insisting it remained on good terms with its lenders.
Board members are understood to have cleared plans yesterday to announce further cuts alongside today's third-quarter results, which are likely to involve job losses among ABB's 150,000 employees worldwide. ABB employs 618 staff at its Irish operations in Dublin, Cork, Longford, Waterford and Lisburn.
The firm, which is Europe's second largest engineering group, has debts of almost $5.2 billion (€5.3 million) and is facing massive claims in asbestos related cases in the US, where its subsidiary Combustion Engineering is facing Chapter 11 bankruptcy protection.
ABB had been in talks with "friendly" banks and was confident of finding a replacement for a $3 billion facility that expired in December. But it failed to reassure investors who continued to drive both ABB's shares and bonds to fresh lows. The shares closed down another 20 per cent at 1.63 Swiss francs, having lost two-thirds of their value on Tuesday, after chairman and chief executive Mr Jürgen Dorman admitted there had been a breakdown in internal procedures that had encouraged its managers to underestimate the firm's financial problems.
ABB's benchmark 9.5 per cent eurobond, due January 2008, was bid as low as 40 per cent of face value, signalling that investors believe the risk of default is high.
Fears that the company was on the brink of collapse hit Credit Suisse, the Swiss bank, a leading lender to both ABB and Mr Martin Ebner, its largest shareholder. Credit Suisse's shares fell 13 per cent at one stage yesterday before recovering to close 8.7 per cent down at SFr24.15.
ABB hopes its liquidity problems will be solved by a combination of fresh bank loans and the proceeds from its structured finance division, sold for to $2.3 billion to General Electric.
European antitrust regulators have not taken a final decision but are believed likely to approve the deal.
Competition experts said the companies might be required to dispose of some overlapping business in corporate finance.
Analysts worry that asbestos problems will deter banks from coming to ABB's rescue.
Investors awaiting more details with today's results are angry at the way news has been communicated. Mr Alex Migliorini of Pictet bank, said: "With respect to the profit warning, we believe the timing, modality and communication with which this was completed raises additional questions on credibility, on financial control and on whether there is sufficient management depth left within the company to complete the turnround."
- (Financial Times Service)
