$1bn bond document gives insight into Digicel
Digicel’s latest bond document, relating to its $1 billion capital raising, contains some interesting nuggets of information about the operation of the Denis O’Brien-owned mobile phone company.
For example, it received an “undertaking” from the minister of finance in Bermuda that it will be exempt from paying any taxes until at least March 28th, 2016, for any entities based there.
At present, no income, profit, capital transfer or capital gains taxes are levied in Bermuda. Its subsidiaries in the Cayman Islands are similarly exempt from taxes.
Separately, Digicel Ltd received $39.1 million in insurance payments relating to the earthquake in Haiti in January 2010.
Its Jamaica business accounted for just under half of the group’s $321 million goodwill value in the year to the end of March. Its Ebitda (earnings before interest, tax, depreciation and amortisation) to revenue ratio in Jamaica was a healthy 54 per cent. This was bettered only by its operation in Trinidad Tobago where the ratio was 55 per cent.
The document also details two actions taken by the authorities in Jamaica. On December 9th, 2011, the Jamaica Fair Trade Commission filed a claim in its supreme court seeking a declaration that Digicel’s acquisition of rival Claro, formerly owned by Mexican billionaire Carlos Slim, was unenforceable.
The deal was part of a three-legged transaction that involved Slim buying Digicel’s businesses in Honduras and El Salvador. The deal in El Salvador was blocked last year by the regulator but the other two have been completed.
In Jamaica, the FTC argues that the merger of Digicel and Claro lessens competition. On May 15th, 2012, the court ruled against Digicel on some “preliminary issues”. Digicel plans to appeal while a full hearing of the matter is expected to take place in the second half of this year.
“The exposure, if we ultimately lose this case, is pecuniary penalties of 5 million Jamaican dollars each for Digicel and Claro,” the document states, plus legal fees for the FTC and rival Cable Wireless, which is a notice party to the action.
Separately, on May 4th last year, the Jamaican tax authorities executed a search warrant and raided Digicel’s premises to retrieve records and documents relating to the payment of VAT.
On the same date, Digicel secured an injunction against the search. The document states that the tax authorities’ action arose from a “misunderstanding” of data that had been provided to them.
“The company and the tax authorities have subsequently met with a view to clarifying this misunderstanding,” the document adds.
“The company strongly believes that it has paid over to the tax authorities all value added taxes collected from customers in full compliance with the law.”