Why is EDC Involved in the Nokia-Siemens Deal?

By Mark Evans | Published: June 25, 2009

The Export Development Bank of Canada has been a long-term financial supporter of Nortel, providing it with credit facilities to do business with international customers.

It fits into the EDC’s mandate to “support their international transactions: to pay for the up-front costs associated with the production of a large export order, to expand into new markets or to respond to a buyer’s request for financing”. EDC also provides financing for foreign firms looking to purchase “Canadian goods and services through loans, guarantees and lines of credit.

So, it’s interesting and somewhat puzzling to discover the EDC provided $300-million of a $400-million credit facility that Nokia Siemens Networks is tapping to buy Nortel’s wireless assets. EDC is justifying the deal by suggesting it will ensure that about 800 R&D jobs remain in Canada.

“Nokia Siemens has been expanding its presence in Canada for many years and this transaction will further its North American expansion,” said Paul Day, Vice-President, Information and Communication Technology with EDC. “EDC’s participation in this transaction will help ensure that we keep Canadian know-how and capability in Canada.”

A question that has to be asked is why Nokia Siemens needs EDC’s support after completing a $2.8-billion line of credit facility organized by Nordea and French bank BNP Paribas. The financing was over-subscribed so Nokia Siemens was able to get more than its original $2.1-billion target.

EDC’s support for Nokia Siemens emerged just five months after EDC entered into a new and modest $30-million “support facility” with Nortel after the company filed for bankruptcy protection. At the time, EDC and Nortel said they would “continue to work together to see if a longer term arrangement, acceptable to both parties, can be reached”.

There are critics who are now suggesting EDC may have blow a major opportunity to manage Nortel’s restructuring process – and thereby protecting Canadian R&D jobs and Canadian pensioners – by demanding changes within Nortel’s senior executive ranks.

Instead, EDC provided a modicum of support while the Canadian government refused to provide Nortel with a financial bail-out even though it’s been handing out billions of dollars to auto makers.

“Nortel as an ongoing concern would have mitigated the damages for the Nortel Canadian pensioners, disabled former workers and terminated employees, since the Nortel Canadian pension health and long term disability plans would remain also as ongoing concerns rather than being forced to be wound up with substantial funding shortfalls,” said Diane Urquhart, an independent analyst, who wants the federal government to protect the rights of Nortel pensioners in Canada.

“Instead, the Federal Government and EDC have taken the next step of funding 46% of a foreign buyer’s purchase of Nortel’s crown jewels in the CDMA & LTE business. This funding support for the foreign purchase of Nortel’s crown jewels, is also a decision that supports Nortel’s announcement of a full liquidation, since it is likely impossible to have an ongoing concern without the company’s crown jewels being part of the ongoing concern. ”

The big question is why did the Canadian government and a Canadian Crown Corporation decline to save Nortel as we know it? Was it a lack of faith in senior management? The lack of a viable restructuring plan?

If you’re a conspiracy theorist, you could easily argue that Nortel had no plans to restructure itself after filing for bankruptcy protection. Instead, the asset sale had been decided upon, and it was only a matter of time before it was executed.

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whatnext4nt

In my opinion and the opinion of most others knowledgeable in the wireless industry, a wireless infrastructure going concern coming out of this situation with a future beyond a couple of years needs LTE to offset the gradual decline in CDMA sales. Of course, no major wireless operator would enter into a long term arrangement on LTE with a company in Ch 11. Therefore CDMA + LTE must be sold, and as a consequence the remaining wireless assets sold. Wireless operators, particularly tier 1 players, need to partner with strong and viable wireless network companies with global reach that are major players in the evolution of technology, standards, and the wireless ecosystem. This is not a game that any random collection of entrepreneurs and financiers can play in and win.

NTInfidel

A massive fly in the ointment: The creditors are even more clueless than Nortel management. The idiots want to insist on attempting to revive Nortel that is teetering on the edge of implosion. The only reason I am hanging is in hopes of getting sold to real company. If they try to reorganize it will collapse. Nortel is damaged beyond repair. If this deal collapses, I will be looking for work full time.

http://www.reuters.com/article/bondsNews/idUSN2...
MatlinPatterson argues that the current bidding process fails to pay sufficient attention to the "going concern" option.

The firm said it has begun preliminary discussions with other creditors and is considering supporting a Chapter 11 reorganization plan in the United States, in lieu of the proposed sale.

protosphere

I don't mean to relay news that will make readers pass out but John Manley is to head Council of Chief Executives in Canada.

http://www.theglobeandmail.com/globe-investor/m...

______________________________________

Why should EDC that paid Nortel to finance foreign orders and export jobs come of any greater surprise than an ex-PM testifying will bells on about cash payments to lobby sales for a foreign company, as Nortel CEO testifies day before torching the farm to a foreign company... is it because the vast majority of our industries are foreign owned anyways?

One might think we would govern our business affairs exponentially better to perhaps be a reflection than contradiction of our international philanthropic and humanitarian reputation. Maybe the U.S. with tough love gets it and we don't =)

zeroman

these guys only take care of themselves. and they can look into the mirror everyday as if nothing happened.

PM_Guy

He had to find a new job as his days are number on the Nortel BOD. Hopefully he doesn't destroy this organization as he did with Nortel.

NTblinker

So, why did Nortel file for CH11, instead CH7. All it's doing is CH7 related issues.

PM_Guy

This allows them to pay themselves big bonuses to dismantle the company instead of giving up control.and getting nothing. Ch 7 will be declared was all the assets have been sold off and bonuses paid out.

The psychiatrist

“Instead, the Federal Government and EDC have taken the next step of funding 46% of a foreign buyer’s purchase of Nortel’s crown jewels in the CDMA & LTE business. This funding support for the foreign purchase of Nortel’s crown jewels, is also a decision that supports Nortel’s announcement of a full liquidation, since it is likely impossible to have an ongoing concern without the company’s crown jewels being part of the ongoing concern. ”

The big question is why did the Canadian government and a Canadian Crown Corporation decline to save Nortel as we know it? Was it a lack of faith in senior management? The lack of a viable restructuring plan?"

Mark

you answered your own question-it's pretty obvious why the EDC was ready and willing to provide a $300 million credit facility to N/S in order to buy Nortel's CDMA wireless division as opposed to when they (EDC) were only willing to provide Nortel with a very modest $30 million credit facility during their supposed bankruptcy restructuring.

This tells me two things

1)EDC had very little confidence in Nortel's current management's ability to actually restructure a viable Nortel.

2)confirmation that the Canadian government was not going to bail Nortel out.

Thank goodness that at least the CDN government saw through the piss poor management that Nortel is infected with and saved tax payers potentially billions that would have been squandered as management would have continued to feed off of Nortel's dying carcass through a variety of shemes and self awarded bonuses.

Mike Zafirovski gave a pathetic display of pretending that as CEO of Nortel he cared for the many employees let go with no severance and pensions impacted for the many who have worked at Nortel long before he discovered Nortel's 100+ year history.

Someone should ask Mike if his kids educations were ultimately compromised when he stated that he invested his kids education money in Nortel stock!

Meridian

Sorry - little off topic - but what the f*** ?

Manley did such a good job at representing Canada company interests as a member of the board for Nortel that they now want him to help sell off all of Canada ?

http://ca.news.yahoo.com/s/capress/090625/natio...

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Major Canadian business lobby group chooses Manley as its next CEO

By The Canadian Press

ADVERTISEMENT

OTTAWA - Former Liberal deputy prime minister John Manley will soon be heading one of Canada's most influential business lobby groups.

The Canadian Council of Chief Executives announced Manley's appointment Thursday after a lengthy succession search to replace long-serving Tom d'Aquino. Manley takes over Jan. 1.

"John's outstanding record of leadership in the public and private sectors, his passion for public policy, his stature as statesman at home and abroad and his well-deserved reputation for integrity make him a perfect fit as our council's next leader," the group's chairman Gordon Nixon, who is CEO of the Royal Bank.

The CCCE is perhaps the most influential business lobby group in Canada, speaking for the country's top corporations, and is not affiliated with any political party.

D'Aquino said he has no concerns that will change despite Manley's long Liberal pedigree, noting that Prime Minister Stephen Harper chose him to head a government task force on Afghanistan in 2007.

"We believe John is above partisanship," D'Aquino said in an interview.

"John operates now at a level of respect and independence that his long-term past association with the Liberal party will not be an impediment or compromise the council's core principle of non-partisanship."

Manley was known as the minister of everything during the final years of the Jean Chretien government, and has held several key portfolios, including finance, foreign affairs and industry.

He was named Time Canada magazine's Newsmaker of the Year in 2001 for his work as the country's security czar in charge of shaping Canada's response to the terrorist attacks on New York and Washington.

Manley also briefly ran for the Liberal leadership in 2003, withdrawing when it became apparent Paul Martin had an insurmountable lead.

After leaving public office, Manley joined the board of several companies including Nortel Networks Corp., which sought creditor protection in January and is currently selling its major business units to various buyers.

D'Aquino, 68, has been head of the council since 1981, almost as long as the organization has existed.

He became a nationally recognized figure because of his championing of free trade with the United States in the mid-1980s and his advocacy for the failed attempts to get Quebec to officially sign on to the Canadian constitution through Meech Lake and Charlottetown accords.

The failure of the constitutional talks was one of his biggest disappointments, he said, along with what he said was his inability to forge a "bridge with Canada's left as represented by the New Democratic Party and labour movement."

Most would consider his persistent lobbying in favour of free trade with the United States as his biggest singular achievement, but d'Aquino said he is as proud of his role in bringing business leaders into the public arena on a whole gamut of issues that go beyond corporate self-interest.

"I would say my biggest achievement was to be able to develop a consensus among Canada's senior business leaders towards a commitment of shaping public policy in a responsible way," Manley said.

Manley's appointment puts two former cabinet ministers at the head of Canada's two top business associations.

Former Conservative cabinet minister Perrin Beatty heads the Canadian Chamber of Commerce, which styles itself as the country's "largest and most influential business association." It is an unbrella network of 300 local chambers of commerce and boards of trade that represent 175,000 businesses of all sizes.

protosphere

EDC is one of Nortel's largest creditors.
They needed to assist this sale to get the most back.

Heck, if they intend on financing the buyers of their remaining units, they may as well just buy Nortel and make it a crown corporation. =)

free_agent

Given the facts going into the situation, EDC probably salvaged the best possible result from a patriotic point of view. Whether or not Nortel planned to liquidate, it's clear that only its dismantling would result in even part of the company being within an enterprise in Canada that was viable over the long term. Otherwise the current management would remain to destroy whatever was left.

Yes, if EDC pumped endless money into "Nortel as a going concern", various Canadian individuals would not get shafted. But EDC wants to get its money back (and probably has a legal obligation to do so), not be a welfare fund.

horace_grimswold

EDC just wanted its money back. NSN will pay up, whether or not any jobs remain in Canada. So float them a bigger line of credit and get your $30m back. The Canadian jobs byline adds a little patriotic tinge to the deal, coincidentally announced the week before Dominion Day in Canada. Win win negotiations.

You don't have to be a conspiracy theorist to realize that Nortel NEVER had any plans beyond liquidation. You just have to be one to believe that they did.

freqmgr

From the beginning I felt that Plan A was liquidation and Plan B was to keep the doors open only if they have to....Mike Z has shown that indeed liquidation is Plan A.