Businessman Denis O'Brien waived about $20 million (€17.5m) of cash dividends last year from his Digicel Group and has promised the mobile company's lenders he will not take further payments until business improves.
The billionaire made the commitment as he led a series of meetings with Digicel Group bondholders in London, New York, Boston and Miami after providing them with details in late February of a decline in revenues and earnings.
Digicel Group’s earnings before interest, tax depreciation and amortisation fell 5 per cent to between $1.1 billion and $1.2 billion for the 12-months to the end of December last, according to documents, which the company has only furnished to bondholders subject to them signing strict non-disclosure agreements. The group’s financial year runs to the end of March.
While Mr O’Brien is forgoing quarterly cash dividends, it is understood that they are rolling up and may be paid out at a future date.
Revenues also fell during the period as the mobile operator in the Caribbean and South Pacific regions was dogged by currency weakness against the dollar and rising competition in some of its main markets.
“The decision to hold dividends is not surprising at the moment when Digicel is currently investing between $300 million and $400 million in cable and high-speed broadband,’’ a spokesman for the company said in response to questions. He declined to comment on the meetings and the documents, saying they are not publicly available.
The bondholder roadshow was the first since Mr O'Brien last October pulled an initial public offering of Digicel shares, in which the company 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 group blamed volatility in US and global markets at the time.
The businessman and his management team used the investor meetings, which took place within weeks of the market interest rate on one of its main bonds striking an all-time high of 15.5 per cent, to pitch plans to improve business and earnings – particularly in Jamaica, Papua New Guinea and El Salvador – during the current calendar year.
“They succeeded in drawing a floor for expectations for the business, which offset the disappointing earnings,’’ said one source.
The company’s total debt at the end of its last financial year in March 2015 was $6.5 billion, which was 5.4 times its Ebitda. It is prevented by its current lender covenants from breaching a ratio of six times.
Digicel’s $2 billion of bonds, which fall due in 2020, have since recovered from a low of 77 US cents on the dollar in February to 86 cents. The market interest rate on the notes, or their yield, has since fallen back to 12.4 per cent, helped by a recovery in investor appetite for high-yielding debt in emerging markets over the past month. Still, they remain well above the 8 per cent yield at which they were trading a year ago.
Digicel, which operates in 31 markets, said in August it planned to pay a quarterly dividend of $10 million through the year to the end of March, according to documents filed with US stock market regulators ahead of its planned IPO. It also said at the time that the company might increase its shareholder payouts in subsequent years, subject to considerations such as cash flow, unspecified growth targets and expanding its business, including through acquisitions.
The businessman founded the group in 2001 in Jamaica, a year after he got €285 million from the sale of his shares in mobile phone company Esat Telecom to British Telecom.
Since Digicel's IPO was pulled, Mr O'Brien has faced the threat of stiffer competition in the Caribbean, where its main rival, Cable & Wireless Communications, has agreed to be bought by US billionaire John Malone's Liberty Global in a deal worth more than $8 billion.