Jamaica: Bondholders still to decide on Digicel’s fate

Denis O’Brien

(Jamaica Observer) For a third time, a decision on accepting Digicel’s offer to defer US$3 billion in payments to bondholders has been postponed.

The new deadline this time is November 16, 2018. This follows an im-passe reached after the initial closing date of September 28, with postponements until October 19, then again on November 2.

It would appear that lenders are taking issue with Digicel’s offer which is intended to alleviate “

its US$6.7-billion debt burden.

To put it in context, Digicel’s debt in local terms is over J$860 billion, whereas the Government of Jamaica presented a budget of J$710 billion for the fiscal year 2017-2018.

Digicel, which was founded by Irish billionaire Denis O’Brien, is proposing that payment to holders of two notes – one for 2020 and the other for 2022 – be pushed back, thus giving the telecoms company – which has a footprint in 31 countries (across the Caribbean, Pacific and Central America) – a two-year window to get its house in order.

The group, which began its operations in Jamaica back in 2001, has to make good on US$2 billion in debts by March 2020, and is thus proposing a push back until 2022. The other note is for US$1 billion to be redeemed in 2022, which Digicel is looking to address in 2024.

The new securities, with later maturities which Digicel is banking on, would allow it breathing room to generate revenue from new business lines in data and media, as well as divesting assets and streamlining its operations.

Meanwhile, the company is continuing to cut its staff complement across its operations and has given an undertaking to reduce capital expenditure by 30 per cent.

However, some institutional lenders are remaining resolute in rejecting Digicel’s offer, possibly spooked by the prospect of seeing their investment further reduced with Digicel being practically downgraded by two leading rating agencies and investors shying away from emerging markets.

Holders of 60 per cent of Digicel bonds, represented by the law firm Akin Gump Strauss Hauer & Feld LLP, continue to not look favourably upon Digicel’s two-part liability management exercise, and are pressing for better terms.

An analyst from Hillhouse Capital speaking with the Jamaica Observer, said: “Digicel wants to extend the maturities on US$2 billion in 8.25 per cent bonds due in 2020 to 2022 and US$1 billion in 7.125 per cent bonds due in 2022 to 2024, but it is offering no real sweeties that entice its lenders.

“The group, though still market leaders in many of its markets, is not the force it once was. Its data package was overpriced, its main competitor is now re-energised and is clawing back market share, and its new senior management team has to do some extensive tinkering under the hood. I think it may well have to look to a further equity injection, but whether O’Brien is inclined to do so is anyone’s guess.

“Revenues are falling (for the first fiscal quarter to the end of June, total revenues declined by six per cent to US$565 million, with a nine per cent fall in voice and data sales) and its leverage is around 6.5 times its adjusted earnings. The question for the bondholders is, do you see the writing on the wall and cash in now, or do you have faith in Digicel who has proven its dynamism and ability to dominate its markets and so give it a chance to do so again?”


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