Sun | Sep 24, 2023

Digicel to redeem US$1.1b bonds after sale of Pacific operations to Telstra

Published:Friday | July 15, 2022 | 12:10 AM

Digicel Group has finalised the sale of its Pacific operation to Australian telecommunications company Telstra Corporation Limited that, it said, was paid for with financing from the Australian government, through Export Finance Australia.

“The transaction values Digicel Pacific at up to US$1.85 billion, inclusive of a three-year, US$250-million earn-out,” the telecoms said on Thursday.

Digicel Pacific operates in six markets in the South Pacific, including Papua New Guinea, Fiji, Samoa, Vanuatu, Tonga and Nauru, with a workforce of around 1,700.

“There will be no change to the Digicel brand in the six markets and the current management team will remain with, and continue to lead the business, delivering best-in- class telecommunications services to Digicel Pacific’s valued customers throughout the region,” the telecoms said in a statement.

The telecoms first launched operations in that region in 2005. The sale cuts its markets down to 25 in the Caribbean and Central America.

Under the sale to Telstra, the telecoms said Digicel Group Holdings Limited will receive US$1.6 billion, before deduction for customary working capital and other adjustments, and that at the closing of the transaction it expects to receive US$50 million for the first earn-out period, “which is based on service revenue performance” for the financial year ended March 2022.

It also noted that the deal was executed at 8.3 times of Digicel Pacific’s EBITDA of US$222 million for FY2022.

The sale comes amid continuing efforts at reining in debt held by the highly leveraged telecoms.

Digicel Group Holdings is now planning an early redemption of US$1.1 billion in bonds as it earns more cash from the sale of assets. The redemption is conditional on the sale of Digicel Pacific.

“The US$1.1-billion Digicel Group Holdings Limited 10 per cent secured 2024 notes will be redeemed as part of the previously announced sale of Digicel’s Pacific operations to Telstra Corporation Limited, and is a term of this bond indenture,” said Antonia Graham, head of public relations for Digicel Group.

The notes are set for redemption on July 25 at a price equal to 100 per cent of their face amount, plus accrued and unpaid interest.

In May, rating agency Fitch downgraded an affiliated company, Digicel Limited, due to debt concerns. Fitch stated that Digicel’s total debt stands at US$5.7 billion, of which US$2.9 billion resides with the Digicel International Finance Limited level, US$925 million at the Digicel Limited level, and US$1.7 billion at the Digicel Group Holdings Limited level.

Following the redemption, it should reduce the debt level of the group to about US$4.6 billion, based on Financial Gleaner calculations of the overall debt load indicated by Fitch. The precise amount isn’t clear, however, as Digicel’s financials are largely private.

Irishman Denis O’Brien founded and controls Digicel Group. However, the telecoms’ bondholders are internationally diverse and include small investors in Jamaica.

Digicel sidestepped queries on its debt load post the July 25 redemption, saying through Graham that it “constantly monitors market conditions to optimise its capital structure and will continue to do so”.

Digicel Group first announced the sale of 100 per cent of Digicel Pacific to Telstra Communications for US$1.85 billion, including performance earn-outs, last October. Rating agency Fitch expects Digicel to net US$1.4 billion in cash from the transaction when it closes.

Fitch, in its May report, said the constraints on an upgrade for Digicel related to its decision to “restructure debt twice”, the group’s concentration of “ownership and control”, and its “complex” group structure.

The rating agency then downgraded Digicel Limited to ‘CCC+ from B-’, while maintaining unchanged ratings for Digicel Group Holdings Limited and Digicel International Finance Limited.