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CARIB | Jun 23, 2022

Girding loins as Digicel bond prices fall

/ Our Today

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What pill can Digicel take for its March 2023 bond headache?

With cratering financial markets and hits taken by emerging economies, Digicel bonds continue to depreciate.

The March 2023 bond is now 72 cents on the dollar, causing grave concerns to investors.

With prevailing conditions, there will be no call for junk bonds as investors seek refuge in performing rock solid assets.

In 2019, Digicel had a debt mountain of  some US$7 billion which it services from earning in depreciating currencies. It has managed to restructure its obligations and assuage the fears of concerned investors for a while.

Significantly, it has made the pivot to data from an over reliance on telephony and has increased its digital offerings. The question is, has it been able to make the turn quickly enough to address its huge debt overhang?

Denis O’Brien, founder of Digicel.

Digicel has been written off before and time and time again its mercurial founder, Denis O’Brien, has found a way to beat the odds. Can he push the sun back up in the sky and give the telecoms company he built one more day of summer?

He will have to persuade investors to give him time. He will also have to get the very best out of his management team to prove the naysayers wrong.

Credit rating agency Fitch has deemed that the US$925 million of 2023 bonds “face significant refinancing risks”, given the current elevated inflationary landscape, contracting Caribbean economies with reduced disposable income and rising capital expenditure costs.

The sale of its Pacific arm to Australia’s Telstra for US$2 billion is most fortuitous and should help Digicel out of a tight spot. It must now resolve that tax liability issue to allow the sale to go through and bolster its liquidity position.

Fitch notes that Digicel’s ability to refinance its debt was “uncertain due to deteriorating macroeconomic conditions, rising interest rates and a decrease in risk appetite”.

Investors may get nervous and no doubt will be looking to pull their money out of fear and despair as markets tumble and recession becomes a reality.

Digicel headquarters in downtown Kingston, Jamaica.

Digicel must now sell its successes and jog memories of what was built in the hope that will be sufficient for investors to keep the faith.

The digital revolution is here and Digicel has made significant strides here. It’s ability to move forward may be shackled by incurred debt as its bond price continues to fall.

It did manage to successfully refinance four bonds in 2020, bringing its debt load down from US$7 billion to US$5.4 billion.

Digicel has categorically denied that it has sanctioned bondholders taking a lien against the company as a way of getting their money back.

It’s going to be a high wire act. Will there be a net this time?

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