Cantillon: O’Brien’s dividend move divides investors

Many bondholders in Digicel Group’s may be impressed that Denis O’Brien has decided to show a bit of solidarity by holding off on extracting a $10 million quarterly dividend from the company until business improves.

Others think, however, that the businessman could show greater comradeship by continuing to take the payment – and ploughing it into some of the company’s beleaguered bonds himself.

Buyers of Digicel Group’s $2 billion of bonds due in September 2020 can get them at 86 cents on the dollar at the moment, offering a 12.4 per cent yield.

While the notes are up from a low of 77 cents in February, weeks before O’Brien and his management team went on an investor roadshow, they are well off the 104 cents they were commanding almost a year ago.

Similarly, his March 2023 notes are trading at 89 cents, compared to almost 100 cents this time last year.

The recovery in the bonds, we’re told, have been down less to the soothing noises of management to investors on its roadshow through Florida, New York, Boston and London between late February and early March, than a bit of a recovery in sentiment towards emerging market and high-yield bonds since then.

Some bond investors believe that O’Brien using some of his own money to buy the notes – and, of course, letting the market know he has been doing so – might give the bonds a further boost.

He has, after all, taken $1.1 billion in dividends, including special payments, out of the company between 2012 and 2014.

Debt investors would be less impressed, however, if the company itself used some of its own cash resources, which stood at almost $500 million a year ago, to buy back bonds, especially when Digicel is committed to investing between $300 million and $400 million in its networks over the next few years.