Businessman Denis O'Brien, who extracted at least $1.9 billion (€1.7 billion) of dividends from Digicel between 2007 and 2014, will face demands from bondholders to inject equity into the business under an expected debt restructuring next year, according to sources.
The businessman refused calls from Digicel bondholders to commit cash to the telecoms group last year as it went about restructuring almost $3 billion of borrowings. A final deal, completed in January, following months of negotiations, saw debt investors agree to swap their bonds for notes for longer-dated securities.
However, $1.9 billion of the new bonds – due in 2022 and 2024 – rank at the back of the queue in terms of recovery should Digicel run into trouble. These securities are currently trading at 16-25 cent on the dollar, reflecting a view in the market that the group’s almost $7 billion debt pile is unsustainable.
A US fund manager who holds Digicel bonds said this week, after the group reported quarterly earnings, that Mr O’Brien would be expected to pump as much as $500 million into the company in order to secure backing for a debt restructuring.
“He kicked the can down the road last time round in a way that was not very friendly to bondholders,” said the fund manager, who declined to be named. “Next time will be much harder for him.”
Fresh equity
An analyst, who also declined to be identified for fear of being cut off from future financial updates from the company, said: “It’s difficult to see a favourable outcome [from debt restructuring talks] without an injection of fresh equity.”
A spokesman for Digicel, which operates in 32 markets across the Caribbean, Central America and Asia Pacific, declined to comment.
Fitch, one of the world’s leading debt ratings agencies, warned last week that Digicel faces “imminent refinancing risk”.
“The most immediate concern is $1.3 billion notes maturing in April 2021, which Fitch believes the company will struggle to refinance amid stagnant operating performance,” the agency said. “Fitch expects that Digicel will have to restructure debt at multiple levels in the next 12-18 months, due to the group’s unsustainable capital structure and imminent refinancing risk.”
Digicel executives highlighted on a call with analysts on Tuesday that the group has a track record of dealing with bond maturities well in advance of when debt falls due. It is expected that the company will seek to address the 2021 bonds in the next six months.
Operating improvement
The US fund manager said a fresh equity injection from Mr O’Brien could be used to buy back much of the 2022 and 2024 subordinated bonds, which are trading at a deep discount in the market, albeit amid very thin trading volumes.
This would automatically lower the company’s debt mountain and would make it easier to refinance the $1.3 billion of 2021 notes on the bond market.
Digicel reported financial results earlier this week to bondholders, which showed that underlying revenues rose 4 per cent year on year in the three months to September, continuing signs of an operating improvement seen in the previous quarter.
However, revenues fell 1 per cent on a reported basis to $554 million, dragged down by a $26 million currencies hit, mainly relating to a slump in the value of Haitian gourde against the US dollar. Haiti, currently in the midst of a political crisis, is one of Digicel's top three markets.
