Alcatel tumbles as 360 scales back

May 16, 2001
Web Posted at 1034 GMT

PARIS, (Reuters) - Shares of French telecoms equipment maker Alcatel (PCGE) plunged over six percent on Wednesday after a major customer, Canada's 360networks, said it was scaling back two major projects.

Toronto-listed 360networks said late on Tuesday it was suspending work on its 360pacific and 360asia fibre-optic projects to help reduce capital expenditure by over $1 billion this year. It also said it would talk to shareholders about raising $300 million by issuing new senior notes.

Alcatel had a $1.1 billion contract to supply 360networks with equipment to build a trans-Pacific undersea telecoms link.

Analysts said they included revenue from the contract in their 2001 turnover estimates for the company.

"Turnover expected for the undersea cable division will collapse in 2001," said a trader. He also said he feared Alcatel will have to buy some of the Canadian company's new $300 million note issuance to support the company.

On Wednesday Alcatel said it was studying 360network's statement.

Its shares tumbled 6.67 percent to 35.28 euros as of 1054 GMT, underperforming retreating sector indices and Paris's CAC 40 index, which fell 1.86 percent.

Alcatel had invested $700 million in 360networks' convertible bonds as part of its supply deal with the company.

The French firm had said in April it had booked provisions to cover losses from converting the bonds into shares.

Tighter capital markets have reduced demand for new fibre capacity. That has helped drive down 360networks' share price in recent weeks amid investor concern over its $2.5 billion debt and its ability to complete its contracts.

The Canadian firm said it still expects to become cash flow positive in 2002, however.

Before it announced its reorganisation plan on Tuesday it closed down 13 Canadian cents at C$2.36, having ranged from C$35.90 to $1.96 in the past year.