Digicel warns on Haiti earnings as $925m bond deadline looms

Businessman Denis O’Brien’s Digicel has warned that public unrest and economic disruption in Haiti will see earnings in one of its key markets slump by as much as two-thirds in the second half of its financial year, adding pressure to the telecoms group four months before it must refinance $925 million (€903.5 million) of bonds.

The bonds’ value have fallen throughout 2022 and traded below 50 cent on the dollar in recent days, meaning investors can buy them on the open market for less than half their face value. That reflects worries about the company’s ability to repay the debt in full as well as ongoing turmoil across emerging market bonds.

Digicel said late on Thursday that it expects its adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) in Haiti to fall to $25 million – $35 million for the six months to the end of March, the second half of its financial year, from $74 million a year earlier.

Haiti, one of Digicel’s largest markets for mobile subscribers, is dealing with a full-blown security and humanitarian crisis since September when armed gangs blocked the country’s main fuel terminal. An ensuing disruption to fuel supplies forced businesses and hospitals to shut just as a cholera epidemic broke out, resulting in public unrest, violence and slashed economic activity.

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Haitian police said they managed to seize control of the terminal last week and the government is seeking to resume supplying fuel stations through the country.

“In addition to the very regrettable community and societal impacts, ongoing disruption to the country’s daily operations and particularly fuel supplies has had a substantial impact on economic activity and Digicel’s operations in Haiti, which depend on fuel to operate much of its network,” Digicel said.

“Digicel is working hard to ensure that key sites in terms of traffic and population coverage are operating as effectively as possible, though as much as 50 per cent of its national telecommunications network is experiencing disruption at any given time.”

The profit alert for one of Digicel’s top markets by revenue comes at a time when the telecoms group is working on ways to deal with a looming deadline to refinance $925 million worth of bonds that are due for redemption at the start of March. Haiti’s currency, the gourde, has lost a quarter of its value against the dollar over the past 12 months. That has exacerbated pressure on Digicel, which reports earnings and denominates most of its bonds in the greenback.

Fitch, one of the world’s leading credit ratings agencies, warned in September that even though Digicel used $1.1 billion of the net $1.3 billion of initial proceeds from the sale this year of its Pacific operations to redeem bonds due in 2024, there are “elevated” risks that it will not be able to refinance the 2023 bonds without a debt restructuring.

Digicel bondholders were forced to write off $1.6 billion of the company’s then $7 billion of borrowings in June 2020, as they faced losing more in the event of a liquidation at the time, as its debt burden became too much following years of earnings decline.

A spokesman for Digicel said in September that the remaining proceeds from the Pacific unit sale and “the strength of its underlying business” meant that Digicel was “confident it is well positioned to address upcoming maturities in advance of time”.