23 October 2002 ? Swiss/Swedish engineering firm ABB saw 50 per cent of the value of its shares wiped off the market yesterday after the group issued a profits warning caused by increasing asbestos liabilities.
Newly appointed CEO Jurgan Doormann shocked investors by saying that ABB would not reach its earnings target for 2002 just over a month after he confirmed the group’s targets and strategy. He said ABB would not reach the four to five per cent level of return and that he saw no market recovery in the next twelve months.
ABB shares fell to a record low of 2.55 francs and analysts Moodys downgraded ABB debt to the lowest rung of investment grade and said it could cut it even further because of weak performance and the need for refinancing 3.7bn of debt in the coming year.
The deterioration stems from an uncertainty over the future of ABB’s Combustion Engineering subsidiary, which it bought in 1990. ABB said it was considering the options for CE, which has liabilities for workers exposed to asbestos under workers compensation insurance policies. It is now likely that the liabilities will exceed the assets of the |US unit which at the end of September were $812m.
In a teleconference later, ABB said it would not be responsible for funding liabilities beyond the assets of the company, but analysts expect group provisions, at $940m, will need to be raised significantly and that a rights issue may be needed.