Australia-China tensions music to Denis O’Brien’s ears

Digicel founder seeking to sell off Pacific arm of telecoms group

Digicel founder Denis O’Brien.

Digicel founder Denis O’Brien.

 

The downward spiral in relations between China and Australia in the past year has played into the hands of businessman Denis O’Brien as he looks to further reduce the debt burden of his Digicel telecoms group.

Having effectively forced bondholders early last year to write off $1.6 billion (€1.35 billion) of what they were owed, O’Brien has been looking more recently at selling off the least-indebted part of the group: its Pacific business, spanning Papua New Guinea (PNG) to Fiji, Samoa, Vanuatu Tonga and Nauru.

Just 150km separate the Australian and PNG mainlands. It’s only 4km if you consider their islands in the Torres Strait. So, whispers last year of Chinese interest in the Digicel unit were enough to goad the Australians into action and inject a bit of competitive tension into the process – underpinning the $2 billion price tag being bandied about for the unit.

Relations between both countries hit a bump when Australia banned Shenzhen-based Huawei in 2018 from having any part in its 5G broadband network amid cybersecurity concerns, before escalating into a full-on trade dispute – ultimately affecting Australian barley, beef, coal and even wine exports – after Canberra called last May for an independent investigation into the initial outbreak of Covid-19.

It emerged in July that Melbourne telecoms group Telstra was in talks to buy Digicel Pacific, with financial backing from the Scott Morrison government. And it seems that things are progressing nicely, with the Australian Financial Review reporting this week that Telstra chief executive Andy Penn carried out a three-day visit to PNG last month to meet prime minster James Marape and long-time O’Brien associate Paul Connolly, among others, and that a deal is likely before the end of the year.

A deal will lower Digicel’s net debt position from about $5.4 billion currently and boost its equity value. It will also likely prompt O’Brien to look closely about $200 million of convertible bonds issued last year to certain types of bondholders that participated in the debt restructuring.

After all, holders of about $190 million of what remains of these bonds – after Digicel bought back about $10 million of them late last year – will be entitled to about a 44 per cent stake in the group if they are not taken out by June 2023.

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