Marconi close to debt-for-equity swap

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The troubled telecoms equipment maker Marconi gave the strongest hint yet that it was inching closer to sealing a vital financial restructuring deal with its banks and bondholders and admitted for the first time the lifeline was likely to take the form of a debt-for-equity swap.

But the company warned again that a debt-for-equity swap was expected to lead to "a very substantial" dilution in value for existing shareholders.

The so-called recapitalisation process, the company said, was likely to involve a debt-for-equity swap for a "significant" proportion of its total £4.3bn of debt. Marconi shares fell 11 per cent to 5.05p.

One City source, who interpreted the statement as "the clearest sign yet" a deal would be done, suggested a statement could come as early as next month. Shareholders are likely to be left with some "residual value" albeit a "very modest" slug of the company, the source said.

Marconi said it continued to make "good progress" in the restructuring talks that are currently underway with both its banks and bondholders.

"We continue our discussions as a part of a controlled process, to effect the recapitalisation of Marconi's balance sheet at the earliest opportunity," Mike Parton, Marconi's chief executive, said.

It is thought that the company's bondholders and banks will have to take some of the pain of the planned restructuring by writing off part of their exposure in any deal. Marconi, meanwhile, is likely to be left carrying some of its existing debt and possibly as much as £1bn.

The company, which fell into chaos after sales collapsed and which has since fired thousands of staff, has £4.3bn of debt including bank borrowings of about £2.2bn.

At the end of April, it said it had ring-fenced about £850m of its then £1.4bn cash pile, which is sitting in a safe bank account and which will go toward the restructuring.

"We are confident that our banks and bondholders will continue to be supportive during the process and that Marconi will emerge from this process with a significantly improved balance sheet," Mr Parton said.

Marconi also warned yesterday that it expected its shares would be delisted from Nasdaq under rules relating to minimum price requirements.

After the delisting, the shares, which currently trade in the US in the form of American Depositary Receipts, will be traded on the so-called 'over the counter' bulletin board.