Canadian Tech Cos. Have Little Or No Exposure To ABCP, Analysts

TORONTO (Dow Jones)--Canadian technology companies are conservative when it comes to cash management and have little or no exposure to the troubled asset-backed commercial paper market, according to BMO Capital Markets.

BMO's David Wright, who covers the software sector, and Brian Piccioni, who covers the technology hardware and semiconductor sectors, surveyed the companies they cover to gauge their exposure to the ABCP market.

Exposure to ABCP has been a topic of interest in Canada because investors - spooked by the recent woes in the U.S. subprime mortgage market - have shunned the ABCP market making it difficult for ABCP issuers to place maturing notes. This, in turn, has raised concerns about companies that invested in ABCP, as they could have trouble retrieving their cash and/or they may have to write down the carrying value of the impaired asset.

Last week, tour company Transat A.T. Inc. said nearly half of its cash, C$154.5 million, is held in ABCP.

While technology companies tend to carry large cash balances, these assets are generally earmarked for acquisitions and share buybacks. Hence, exposure to ABCP isn't likely to impair a tech firm's ability to operate unless it carries a large debtload and needs access to its cash to service the debt.

"Most of our companies follow a conservative investment policy for cash, and do not require cash on the balance sheet to fund operations," Wright said.

Among the companies that Wright surveyed, Certicom and Nurun indicated they have no exposure to ABCP. Descartes Systems Group, CGI Group, Emergis and Cognos, which had US$654 million in cash and marketable securities at May 31, appear to have little or no exposure, Wright said.

Open Text Corp. didn't participate in the survey, as it was in a quiet period ahead of the release of its fourth-quarter financial results. However, after Wright published his results, Open Text contacted him and indicated it only invests in government or grade A commercial paper, Wright told Dow Jones.

MacDonald Dettwiler & Associates indicated its C$30.5 million in cash and marketable securities is mostly kept in overnight funds and used to service its C$360 million debt.

Teranet Income Fund indicated it has no third-party ABCP, but it does hold some commercial paper and banker acceptances. Wright said he believes there could be a small write-down in the carrying value of Teranet's C$107 million cash position when the company reports its third-quarter financial results in the fall.

Business Objects, the only non-Canadian company in Wright's survey, didn't comment. The company had US$929.1 million in cash and marketable securities at June 30, and recently issued US$600 million in convertible debt, according to information in Wright's survey. Wright said the interest rate generated on Business Objects' cash balances has not historically suggested an aggressive cash-investment policy. As well, the company, which is headquartered in both San Jose and Paris, has previously indicated it would use its cash for acquisitions, he said.

Among companies surveyed by Piccioni, Evertz Technologies, GSI Group and ART Advanced Research Technologies have indicated they don't have any ABCP exposure.

Tundra Semiconductor indicated it invests its C$60.7 million in cash and marketable securities through RBC Capital Markets, and any investment in commercial paper is highly rated, Piccioni said.

Piccioni said that Mosaid Technologies may have some ABCP exposure, as some of its cash and marketable securities is held in corporate bonds and money-market instruments. However, Mosaid reported its fiscal-first quarter financial results Thursday after the close and indicated it has no ABCP exposure. The Ottawa firm closed the quarter with C$62.5 million in cash and marketable securities.

Zarlink Semiconductor indicated it has no exposure to collateralized debt obligations or other low-grade investment paper, Piccioni said.

Ballard Power Systems indicated its investment portfolio consists 100% of investment-grade securities and is typically comprised of government securities, bank acceptances, commercial paper and bonds. While it may have some indirect exposure to ABCP, Piccioni said the company indicated that it has not experienced, and doesn not expect to experience, any issues.

Miranda Technologies indicated it didn't have any ABCP exposure.

Piccioni said the three U.S. firms in the survey have large cash balances with significant portions invested in riskier securities, such as corporate bonds, commercial paper, asset-backed securities or money market funds. For instance, Intel and Advanced Micro Devices had 90% and 61%, respectively, of their cash and marketable securities invested in non-bank or non-government-backed offerings at December 2006, he said. Nvidia had 94% of its cash and marketable securities in non-bank or non-government-backed offerings as of the end of January 2007, he said.

Neither analyst covers Canada's largest technology company, Research In Motion. At June 2, the BlackBerry maker had US$1.56 billion in cash, cash equivalents, short-term and long-term investments. RIM emailed an excerpt from its regulatory filings that indicated the company "mitigates risk by investing only in liquid, investment-grade securities and by limiting exposure to any one entity or group of related entities."

The filing noted that, at June 2, no single issuer represented more than 10% of RIM's total cash, cash equivalents and investments.

-Stuart Weinberg, Dow Jones Newswires; 416-306-2026; stuart.weinberg@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 1st September 2007