Digicel debt investors demand 30% interest rate as $2bn refinancing looms

Buyers of bonds that Denis O’Brien’s Digicel must redeem in two years’ time were demanding a record market interest rate of up to 30 per cent this week, amid mounting concerns over the company’s ability to refinance the debt in the near term.

The value of the $2 billion of par-value bonds has fallen by as much as a third so far this year to 66.3 cent on the dollar on Wednesday, sending the yield on the notes up to 30.2 per cent from 8.02 per cent in January.

However, the bonds rallied slightly on Thursday to 69.3 cent. The Irish Times reported last month that the teleco founded by Mr O'Brien in 2001, and which currently spans 32 emerging markets, plans to raise as much as $500 million from asset sales in the next nine months, as it races to lower its debt burden and win investor support to refinance the 2020 bonds.

Moody’s, one of the world’s leading debt ratings agencies, warned last month that it could downgrade Digicel’s credit rating if the company did not raise money to repay the bond debt within 12-18 months of the notes falling due in September 2020.

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Digicel, which launched a massive restructuring plan last year to bolster earnings, disappointed investors in June by unveiling a weak set of financial results for the year to the end of March.

The company has pitched to investors that it can reduce its net debt from 6.7-times earnings before interest, tax, depreciation and amortisation (ebitda) in March to 5.7 times.

“The company cannot refinance under current conditions and bond prices,” said a US-based credit analyst who follows Digicel’s $6.6 billion debt pile. “They need to sell more assets, show improved results – if only slightly better – and, by that, lower the yield on the 2020 bonds. It will take some time, but the company can improve the situation and place itself in a better position.”

A spokesman for Digicel said that the company remains “fully committed” to reaching its March 2019 debt-ratio target.

“Digicel has a very strong track record of refinancing comfortably ahead of bond maturities and it has no major maturities under two years,” he said.

Moody’s has said that while Digicel’s cash balance “remains adequate” for the next 12-18 months, it lowered its outlook on the company’s credit rating last month to “negative”, saying its “current weak financial profile is constraining the group’s refinancing options”.

Digicel had a cash balance of $155 million at the end of March as well as access to $54 million under a credit facility, according to Moody’s.

The company has told analysts it plans to complete the sale and leaseback of 450 wireless communications towers across the Caribbean by the end of September, and there is also mounting speculation that the group could sell its business in Panama.

The company may make more than $80 million for the towers, based on prices it is understood to have received for a similar deal earlier this year.

Mr O’Brien said in January that it may be the first half of 2019 before he looks again at trying to float Digicel on the stock market. The businessman pulled an initial public offering of the company in October 2015. The transaction would have raised up to $2 billion of equity.