Denis O’Brien’s Digicel says ‘bizarre’ new tax will delay Telstra deal

Group ponders legal options as Papa New Guinea hits it with substantial bill – €90.5m

Businessman Denis O'Brien's Digicel has criticised a "bizarre" new tax introduced by Papua New Guinea which will see it hit with a bill of €90.5 million and delay the sale of its Pacific subsidiary to Australian telecoms giant Telstra.

The parliament of Papua New Guinea last week approved an amendment to the Income Tax Act that introduces a new additional company tax on the telecommunications and banking sectors.

The tax imposes a tax liability of PGK 350 million (€95.5 million) on Digicel with a further penalty of PGK 50 million (€12.7 million) for non-payment.

Digical said the “new arbitrary, company-specific tax act” was introduced “without any consultation” and was “perplexing” not just for Digicel, but also for the Papua New Guinea economy.

It suggested there would be “reputational and credit rating implications” of the “sudden, bizarre and unprecedented tax”. Under the new law, the tax was payable on March 30th.

Digicel said owner and chairman Denis O’Brien met with prime minister James Marape and two of his regional governors last week, during which Mr Marape “assured Digicel that the new tax would not proceed”.

Digicel is now engaged in discussions with the Papua New Guinea government and other relevant stakeholders “to ensure this commitment is honoured”.

The group said the matters would affect the timing of the previously announced sale of Digicel Group Holdings’s wholly owned subsidiary Digicel Pacific to a wholly owned subsidiary of Australian telecoms giant Telstra.

Prior to the introduction of the tax, all but one of the required regulatory approvals to complete the transaction had been obtained.

“This matter requires urgent resolution given its implications for the sale of Digicel’s Pacific operations to Telstra but also given the knock-on consequences for all foreign direct investment exiting Papua New Guinea,” Digical said.

It also pointed to “the wider reputational and credit rating implications for Papua New Guinea internationally”.

Digicel is also considering its legal options in the event that this “discriminatory tax” is not removed.

Speaking about the Telstra deal when it was announced in October, Mr O’Brien described Digicel’s Pacific unit as a “cracking business” with a “lot of growth” potential.

Telstra has agreed to acquire Digicel Pacific for $1.6 billion. This will be funded with $1.33 billion from the Australian government and $270 million in equity from Telstra.

“There is a lot of growth left in the business and that made it very attractive, and it generates about $235 million of ebidta [earnings before interest, tax and depreciation] and has very good cash flow,” said Mr O’Brien.

“The main thing is that Telstra is getting a cracking business and the Australian government are also involved.”

“There is a lot of growth left. About 2.5 million out of a seven million population in Papua New Guinea have a mobile phone so that would be 70 or 80 per cent pretty quickly.”

Digicel said it would provide a further update in due course.