Telstra sees Digicel Pacific deal sitting outside main businesses

Chief executive unveils new strategy for Australian telecoms group running to 2025

Telstra said in late July that it was in discussions to buy Digicel Pacific, the least-indebted and most valuable part of businessmen Denis O’Brien’s Digicel Group

Telstra said in late July that it was in discussions to buy Digicel Pacific, the least-indebted and most valuable part of businessmen Denis O’Brien’s Digicel Group

 

Telstra’s chief executive, Andy Penn, said on Thursday that he sees Digicel Pacific being run separately to the Australian telecoms giant’s main businesses, inside a planned international unit, as talks on an estimated AU$2 billion (€1.25 billion) potential acquisition continue.

Still, Mr Penn told analysts as he unveiled a new strategy for the group running out to 2025 that he has not yet factored in the earnings uplift from a possible Digicel Pacific purchase, backed by the Canberra government, into his new financial targets.

Telstra said in late July that it was in discussions to buy Digicel Pacific, the least-indebted and most valuable part of businessmen Denis O’Brien’s Digicel Group. Digicel, which imposed US$1.6 billion of losses on its bond investors last year to bring the group’s debt down to a more sustainable $5.3 billion, hired investment bankers in Citigroup late last year to advise on a possible sale of the Pacific operations, spanning Papua New Guinea to Fiji, Samoa, Vanuatu Tonga and Nauru, after receiving approaches for the business.

“Were we to acquire [Digicel Pacific], we would effectively operate it and run it under our international business, relatively independently to the other businesses as well,” Mr Penn said. “It’s not included in any of the financial ambitions or the guidance that we have provided so far.”

Telstra had previously stated that it was setting up a new group structure that will create four subsidiaries, including units for its fixed telecom network, mobile network tower assets, customer-facing business and international business, including undersea cables. The group’s new strategy envisages $500 million in cost cuts out to 2025 to help drive earnings, on top of $2.7 billion of savings targeted in an ongoing restructuring plan, unveiled in 2018 and set to concluded next year.

Australian prime minister Scott Morrison’s government has lined up to provide AU$1.5 billion of loans to back a Digicel Pacific deal, following reports earlier in the year of Chinese interest in Digicel Pacific at a time of heightened political tensions between both countries.

The potential deal “has come up in more, sort of, unusual circumstances” to normal Telstra acquisitions, Mr Penn told analysts on Thursday.

Just 150km separate the mainlands of Australian and Papua New Guinea, Digicel Pacific’s main market, narrowing to 4km between their respective islands in the Torres Strait.

Relations between Canberra and Beijing 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 Australia called last May for an independent investigation into the initial outbreak of Covid-19.