This was a momentous week for Digicel, one that will define its fortunes going forward.
First came its inability to meet its US$925-million bond payment on March 1. That was followed by the announcement that it had agreed in principle with bondholders to reduce its debt by US$1.8 billion, with its founder and chairman removing himself as majority shareholder and making do with a seat on the Board while holding an equity stake. This is a ‘Proposed Transaction’ with no certainty at this time that it will go through, but it is a workable solution.
The week then closed with rating agency Fitch further downgrading Digicel.
Its reasoning was as follows: “Digicel’s decision to restructure debt multiple times remains a constraint on the rating and its corporate governance is deemed weak.
“Digicel’s Issuer Default Ratings (IDRs) reflect the increasing likelihood that the Group will enter a debt restructuring with creditors. A rating upgrade is unlikely prior to a debt restructuring.”
Here are some questions for Digicel’s boss, Denis O’Brien:
1. What efforts will Denis O’Brien make to retain the majority share interest in the company he built over 20 years ago and what will his exact shareholding be going forward?
2. With the bondholders calling the shots now, who will likely be the ultimate decision maker?
3. With Denis O’Brien now just a director, will he now be a passive bystander leaving decision making to others? Will he now adopt an elder stateman role, one whose advise is sought?
4. Will the present Board known to be ardent supporters of Denis O’Brien be disbanded and a new one put in place to steer Digicel into a new dawn?
5. Will the present management team undergo wholesome changes and new talent found to resuscitate Digicel’s fortunes?
6. Will Digicel be making staff cuts now that its debt of US$4.4 billion is untenable and will need restructuring?
7. Exactly where in the business is the distress coming from? COVID, the Haiti situation, higher interest rates are no doubt contributing factors, but should Digicel revert to core portfolios rather like how Massy has done?
8. At one time, Digicel was in 32 countries. Was the decision to expand rapidly and scale up in hindsight a drag on revenues?
9. High interest rates are a fairly recent occurrence (moving from Quantitative Easing to Quantitative Tightening)and cannot be a major cause of Digicel’s high level of debt. What accounted for allowing the Group to become so indebted?
10. Denis O’Brien is said to have a net worth of around US$4 billion. Should he not seek to inject a substantial part of that into breathing new life into Digicel considering he took US$2 billion out?
11. Looking back was the digital strategy and in particular placing faith in several apps like Bip, GoLoud, Sportsmax, D’Music Digicel PlayGo a mistake given the universal dominance of WhatsApp, Facebook, Spotify and Apple Music?
12. Was it also an error to place such heavy investment in cable television with streaming companies like Netflix, Apple TV, Hulu , Amazon Prime and Disney+ now pre-eminent and redefining viewing habits? Would it not have been wiser to place more emphasis on content creation?
13. Wouldn’t it be better for Denis O’Brien to cut his losses and sell Digicel rather than be dictated to by bondholders?
READ: Fitch downgrades Digicel…again