Irish businessman Denis O'Brien's Digicel Panama plans to exit the Central American market, saying the recent merger of Cable & Wireless Panama and a local government-controlled rival, "effectively spells the end of competition in the telecoms market for smaller players".
“Digicel Panama has repeatedly conveyed in writing to the authorities that approval of the merger without appropriate remedies would result in our exit as we cannot continue to fund the semblance of a three-player market,” Digicel said in a statement.
“Despite this, the merger has been approved and the combined entity, in which the Panamanian government is a 49 per cent shareholder, has already engaged in predatory pricing and below-cost selling with a significant deterioration in the market in recent weeks.”
Digicel said that Digicel Panama asked the local regulator to intervene “but he has ignored this request”.
“This will make it impossible for Digicel Panama to operate profitably and undermines the case for any further investment in the market,” the group said, adding that Digicel Panama intends to apply for voluntary liquidation and withdraw from the telecommunications market in Panama.
Digicel Panama informed its employees in Panama of its decision on Wednesday and “gave them an assurance that Digicel and Digicel Panama will fully honour their commitments to them,” it said.
Digicel said that it had looked at a number of options for Digicel Panama in the past two years, including a sale of the business.
While the Digicel does not publicly report financial statements, filings with the US Securities and Exchange Commission in early 2020 in relation to a major debt restructuring gave some insights into various parts of the business, including Digicel Panama.
The filings shed light on the particular financial difficulties at the time of the company behind Digicel’s Panama operations, Digicel Holdings (Central America) Limited (DHCAL), in which the group held an almost 45 per cent stake and Mr O’Brien personally owned a 51.9 per cent interest.
Mr O’Brien stopped providing finance to DHCAL in 2011 and, as of September 2019, it had $590.3 million (€540 million) in loans from the wider group. At the time of the filings in early 2020, Digicel said it did not see these loans being repaid in full and had taken large impairment charges against them – valuing its total investment in DHCAL for accounting purposes at $35.9 million.
Digicel said in its statement late on Wednesday that it holds its equity in Digicel Panama through an unrestricted subsidiary of the group.
“Digicel does not expect the impact of this announcement to have a material impact on Digicel’s financial condition,” it said.
The decision to exit Panama comes days after Digicel said that that the timing of its planned sale of its Pacific operations, dominated by its Papua New Guinea (PNG) business, for an up-front $1.6 billion could be affected by a “new arbitrary, company-specific tax Act” that has effectively landed it with a $100 million-plus bill in PNG.