Digicel plots earnings rebound after $2.3bn investment

Phone group’s bonds have fallen sharply since Trump election, sending yields higher

Digicel chairman Denis O’Brien:  said in May that it would be another 12-18 months before he attempted another initial public offering. Photograph: Swoan Parker/Reuters

Digicel chairman Denis O’Brien: said in May that it would be another 12-18 months before he attempted another initial public offering. Photograph: Swoan Parker/Reuters

 

Denis O’Brien’s Digicel Group, whose bonds have slumped in the wake of Donald Trump’s election as the next US president, has indicated to bond investors and analysts that $2.3 billion (€2.17 billion) of network investment over five years will finally lead to a rebound in earnings in its next financial year.

The Bermuda-based company, which operates in 32 markets in the Caribbean and South Pacific regions, has also outlined ambitious targets to cut its debt mountain by March 2019, relative to earnings, according to sources.

Executives at the company, where Colm Delves is chief executive, told investors and analysts in recent weeks that the phone group aims to cut its debt ratio to 4.5 times earnings before interest, tax, depreciation and amortisation (ebitda) by March 2019 from 6.2 at the end of September. They see the ratio falling in the interim to 6.0 in March 2017 and between 5.25-5.5 a year later.

Digicel’s earnings are currently in middle of a third year of decline, with its latest quarterly figures, to the end of September, hit in particular by currency weakness in several of its markets against the dollar.

Sharp sell-off

The market interest rate – or yield – on the group’s $2 billion of bonds due to be repaid in 2020 has soared in recent weeks to 14.9 per cent, a level not seen since a sharp sell-off in emerging market bonds in February, and well above a year-to-date low of 10.6 per cent, in August.

The bonds, sold off sharply following Mr Trump’s unexpected US election victory on November 8th, are currently trading at 81 cent on the dollar. Digicel had $6.36 billion of debt at the end of its last financial year, in March.

Meanwhile, the dollar has risen against all emerging market currencies since the US vote, amid speculation that his plans to boost infrastructure spending will boost inflation and accelerate interest-rate hikes.

Emerging-market bond funds had $3 billion of withdrawals last week, according to data from EPFR Global, a US firm that tracks fund flows. That followed a record $6.6 billion of outflows in the previous week.

Even as currency fluctuations remain out of the control of Digicel, executives are projecting that ebitda will return to growth in the year to March 2018 as its massive expenditure programme on cable and fibre delivers returns and the company cut costs.

Debt mountain

In October last year, Mr O’Brien pulled an initial public offering of Digicel shares, in which the group was seeking to raise up to $2 billion to help lower its debt mountain, expand its operations and list on the New York Stock Exchange. The company blamed volatility in the US and global markets at the time.

Mr O’Brien, who founded the group in 2001 in Jamaica, a year after he received €285 million from the sale of his shares in mobile phone group Esat Telecom to British Telecom, said in May that it would be another 12-18 months before he attempted another initial public offering.

The group, which has sponsored Usain Bolt since 2004, gave the Jamaican sprinter a lifetime ambassadorial role after the Rio Olympics in August by appointing him as its so-called chief speed officer.