Regional telecoms player Digicel is playing for time.

As March 2023 looms, the Denis O’Brien-led company that began operations in Jamaica 20 years ago is facing a US$925-million debt payment of which it will have to ask bondholders to postpone.

O’Brien has an uncanny way of spinning the chamber, and the gun not fatally going off. Luck may very well be on his side again as he attempts a third debt restructuring exercise in four years.

As it stands, the playing field is not too kind to Digicel. Emerging market bonds are tanking, rising interest rates, high inflation, less disposable income particularly in third world countries, more competitors entering the telecoms space, devaluing currencies- all could create the perfect storm.

Today, Digicel bonds are trading at just 40 cents on the dollar which means they can be purchased on the open market for 60 per cent below face value.

What you are looking at here are junk bonds.

But it is not all dark skies with foreboding thunder and lightning that makes navigation hazardous.

By selling its Pacific assets, it has managed to reduce its huge debt mountain by US$1.2 billion to US$4.2 billion. It is now in 25 markets rather than 32.

Digicel is reporting its revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) increased in the three months to the end of September (Q2).

As it stands, its debt is six times EBITDA over the preceding 12 months and it has US$500 million of unrestricted cash on its balance sheet. Earnings fell by one per cent to US$175 million.

O’Brien is respected and revered in the Caribbean and, if he should ask for forbearance, he will be given a listening ear. His ability to persuade has won the day before and it may very well do so again.

Reports coming out of the Irish press are that Digicel is currently in negotiations with bondholders to postpone payment on the US$925-million debt.

Disgruntled bondholders in Jamaica have been grumbling on their verandas, but they have not given up altogether on Digicel. The Group may well have to cut staff significantly and reduce its operating expenses to appease bondholders.

Digicel is at the mercy of a group of bondholders with US$190-million worth of convertible notes in their pockets, looking for a default to allow them to get their hands on 47 per cent of the company that O’Brien built. These bonds were issued in 2020 and are due in June of next year.

Arthur Stein, an analyst at Conway Capital, speaking with Our Today, said: “It’s no secret that Digicel has for years had a large debt overhang. It is remarkable that bondholders have allowed it to restructure its debt significantly on almost a yearly basis over the last 48 months. They have kept faith with Digicel and believed in the brand. I think they will do so again. Selling its Pacific business to Telstra will weigh in its favour with bondholders. What Digicel needs now is a consistent period of good earnings.”

The rating agency Fitch was less positive in its assessment of Digicel in September when it issued the Group with a downgrade.

“The Group’s ability to successfully refinance US$925 million in senior unsecured notes due in March 2023, outside of a coercive exchange, remains uncertain due to deteriorating macroeconomic fundamentals, rising interest rates and unfavourable market conditions. There is a low margin of safety for the company and a default is a real possibility. In Fitch’s view, there is an increasing likelihood of a comprehensive restructure across the various entities due to the maturity of more than 70 per cent  of the Group’s consolidated debt within two years.

“Digicel’s decision to restructure debt twice remains a constraint on the ratings and its corporate governance is deemed weak. The Group has a concentrated ownership and control structure with a single shareholder who owns and controls the Group and is heavily involved in the day-to-day operations of the business. Digicel’s complex group structure and incorporation status in dozens of countries results in a complex group structure that weakens both Digicel’s corporate governance and the group’s consolidated credit profile.”