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O’Brien to retain 94% voting rights in Digicel after IPO

Published:Wednesday | September 23, 2015 | 12:00 AM
Digicel founder and chairman, Denis O'Brien.

Digicel Group is seeking to raise US$2 billion through its initial public offering (IPO) on the New York Stock Exchange, most of which appears destined to pay down debt racked up by the company over more than a dozen years of operation.

After the IPO, the firm's founder and chairman, Denis O'Brien, will be left with approximately 94 per cent of the voting power of the company.

The telecommunications firm says it expects the shares on offer to be priced at between US$13 to US$16 per share. At the midpoint price of US$14.50, it figures it can repay US$1.2 billion to US$1.3 billion of its debt and boost its cash reserves by US$400 million to more than US$700 million.

The amount of debt that will be repaid is yet to be determined, but that will depend on how high a premium Digicel is willing to pay on redeeming some of its debt early and how much it hopes to save on interest costs.

At US$6.5 billion, the telecom's total debt is closing on a threshold where it will find it difficult to borrow more money because of certain covenants under its existing financing arrangements.

The group's debt incurrence covenance requires that its ratio of total debt to EBITDA - earnings before interest, tax, depreciation and amortisation - not exceed six times. As of June 2015, Digicel Group's debt-to-EBITDA ratio stood at 5.7 times.

Redeeming even the smaller targeted debt amount would reduce that ratio to 4.6 times.

Apart from lessening the overall debt load, the company will also benefit from a reduction in interest expense.

"While Digicel has not yet determined which specific tranches of debt it will repay, it expects a reduction in its annual interest expense in future periods by approximately US$61.5 million to US$82 million," said the telecom's filing to the US Securities and Exchange Commission on Tuesday.

But that hardly puts the telecom in the black.

Digicel Group posted US$31 million in net loss for the three months to June, which was an improvement from the US$52-million loss it recorded for the comparative three months in 2014.

Annualised, that places the company's projected loss for the current financial year above US$100 million, or more than any interest savings the telecom hopes to get from the IPO.

Revenues from all of Digicel's defined markets, except for Trinidad & Tobago, declined from year-earlier levels during the three months to June, while profit only rose in one market segment Guyana.

The telecom plans to use the rest of the proceeds from the offering for general corporate purposes, including capital expenditures and acquisitions.

Digicel Group began operations in Jamaica, where its headquarters is located, and has expanded worldwide to more than 30 markets since its founding in 2001.

business@gleanerjm.com