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CARIB | Jun 23, 2022

Compared with Digicel, C&W (Flow) has a stronger financial profile and better product diversification – Fitch

/ Our Today

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Aerial exterior view of Flow Jamaica’s corporate headquarters on Carlton Crescent in St Andrew.

Fitch, one of the world’s leading rating agencies, in weighing up which operator (Digicel or Flow) is in a stronger financial position with greater product offerings, gives the nod to Flow.

Cable & Wireless operates under the brand name Flow in the Caribbean.

In a released Outlook Report, Fitch affirms C&W at “BB-“ with a “Stable” outlook.

The report read: “The ratings reflect C&W’s leading market positions across well-diversified operating geographies and service offerings, underpinned by solid network competitiveness and leading B2C and B2B offerings. The ratings also reflect Fitch’s expectations that parent company Liberty Latin America will maintain moderately high levels of leverage as a result of acquisitions or cash upstream events.”

Only last month, Fitch expressed concerns about Digicel’s ability to meet its payment obligations due in March 2023. Given the more recent global financial outlook, those worries have come sharper into focus.

“The removal of the Rating Watch Positive and downgrade of Digicel Limited reflect increased refinancing risk of its US$295 million unsecured notes due in March 2023 due to deteriorating macroeconomic conditions globally, rising interest rates and increased investor risk aversions.

“There is a low margin of safety for the company and a default and /or default-like process is a real possibility which is reflected in the removal of the Rating Watch Positive and downgrade to ‘CCC+’ from B-‘ for Digicel Limited and the affirmation of ‘CCC’ for DGHL,” was Fitch’s assessment of Digicel.

Come the last weeks of June, Fitch is still focused on Digicel’s refinancing risk and sees Cable & Wireless as being in a stronger position.

Looking at both telecom operators who have significant businesses here in Jamaica, Fitch noted, “Compared with competitor Digicel, C&W has a stronger financial profile and better product diversification. Digicel is also concentrated in markets with weaker operating environments and per capita incomes and more foreign exchange risk. Both companies’ ratings reflect their approaches to corporate governance, although Liberty Latin America’s approach is much less hostile to creditors. Digicel has a large debt maturity due in 2023 at one of its subsidiaries, which faces significant refinancing risk.”

Taking an overview of the head-to-head between Digicel and C&W, Fitch drew attention to C&W’s strong market position where it is number one or number two in major markets, “ many of which are a duopoly between C&W and Digicel Group Holding Limited (CCC).”

Aerial imagery of the Kingston Waterfront, with Digicel Jamaica’s headquarters in focus (left). (Photo: Vision 2030)

Fitch continued: “The risk of new entrants in any given market is low given their relatively small size. C&W’s largest mobile market, Panama is turning into a two-player market from a four-player market after C&W reached an agreement to acquire the number three player while the number four player is exiting the market.”

“While local legislation requires three operators to participate in this market, the economic prospects of a third operator in the near-term are questionable. C&W’s revenues should be more resilient than speculative-grade issuers in the region, as the latter generally have a higher dependence on mobile revenues that are less sticky than subscription fixed-line and B2B service revenues.”

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