Digicel’s CFO shows he’s mobile

Cantillon: With Leclercq’s exit, the highly indebted group is on the hunt for a new CFO

Global investors have become more cautious about emerging markets. Photograph:   Ken Cedeno, Corbis via Getty

Global investors have become more cautious about emerging markets. Photograph: Ken Cedeno, Corbis via Getty

 

It’s hardly the best time for Denis O’Brien to be looking for a finance chief for his Digicel Group.

The highly indebted group saw Fitch, one of the world’s leading credit ratings firms, downgrade its stance on $6.7 billion (€5.7 billion) pile of borrowings last weekend, saying the group needs to deliver a “material improvement” in its debt ratios and deliver “sustainable” free cash flows “to mitigate any refinancing risks” as $5.7 billion bonds fall due by March 2023.

The main focus has been on $2 billion of notes that mature in September 2020. Having traded at 100 US cents on the dollar in January, these bonds have slumped to below 68 cents, as global investors have become more cautious about emerging markets and the mobile phone group’s ability to refinance the debt ahead of schedule.

Investors weren’t given much reason for optimism on Wednesday when Digicel distributed its latest set of quarterly earnings, which showed that earnings dropped 2 per cent in the three months through June, year-on-year, while revenues declined 9 per cent.

Red pen

While the company has taken a red pen to investment expenditure and kept a close eye on costs, its debt crept up to 6.75 times earnings before interest, tax, depreciation and amortisation (ebitda) in June from 6.74 three months earlier – at a time when O’Brien is asking bondholders to have faith in his plans to cut the ratio to 5.7 next March.

Then, Digicel announced the surprise departure of its chief financial officer of only 12 months, Ray Leclercq.

While it is understood that Leclercq’s decision was prompted by a change in his personal circumstances, and that the executive will be returning from Dublin to the UK, the timing of his departure is unfortunate for a company assessing its options of how it can refinance its 2020 bonds. All at a time when buyers of the notes are now demanding a market interest rate, or yield, of more than 30 per cent.

Digicel’s deleveraging plan hinges on the group selling $500 million of assets and boosting full-year ebitda by 10 per cent to $1.1 billion. There was little sign of delivery on either in the first quarter.

Investors may not have hung up on Digicel. But they are growing tired of being kept on hold.

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