As Independent New & Media (INM) limped into the arms of Belgo-Dutch publishing group Mediahuis this week, the ending of its 46 years as a listed company crystallised a loss running into the hundreds of millions of euro for Denis O'Brien.
The businessman is estimated to have spent more than €500 million accumulating a 29.9 per cent stake between early 2006 and the end of 2013. His cheque from Antwerp: €43.5 million.
The €145.6 million price of the takeover – valuing the Republic’s largest newspaper publisher at less than €64 million when its cash pile is stripped out – is largely down to the all-too-familiar problems of traditional media houses. But it also reflected the fact that Mediahuis has inherited some tricky corporate skeletons.
The Office of Corporate Enforcement (ODCE) is looking into a range of allegations by former INM managers, while both it and the Data Protection Commission are examining claims of a major data breach in 2014 where confidential emails were interrogated by an outside firm under the direction of then chairman Leslie Buckley.
The ODCE has alleged the exercise was paid for by a company owned by O’Brien. Buckley has consistently said that he will robustly defend himself against “each and every allegation” against him.
Meanwhile, the Central Bank is examining ODCE concerns over the possible leak of inside information on INM before stock market investors were informed.
These issues may drag on for years and makes it difficult to draw a clear line under the old regime, where O’Brien was the main shareholder.
But much as O’Brien must rue the day he picked up a phone to his broker to put in an order for INM stock, he may yet conclude that this was not his biggest misstep in business.
Bullish
That could be the night almost four years' ago when he pulled a $2 billion (€1.8 billion) initial public offering (IPO) of Digicel, the telecoms group spanning the Caribbean and Asia Pacific regions which he set up in 2011 after making his original fortune selling Esat Telecom to BT.
“We made the right decision last night,” a tired-looking, but bullish O’Brien told business news CNBC on October 7th, 2015, hours after he aborted the deal. “We woke up this morning and we’re very happy that we pulled the IPO.”
O’Brien had planned to sell a 40 per cent stake and list Digicel in New York, but investors were unwilling, amid choppy financial markets at the time, to pay what he was looking for. It’s understood the price put to him meant he would have to cede more than 50 per cent of the equity.
“Why sell your front garden at a discount when you know it’s worth a lot more money?” he asked. “It’s a great feeling not to need any funding.”
Digicel had planned to use $1.3 billion (€1.1 billion) of the IPO proceeds to pay down the $6.5 billion (€5.8 billion) debt pile built up over less than a decade and a half in the high-yield, or junk, bond markets. Most of the borrowings were used to build out networks across more than 30 regions. But they also supported O’Brien taking $1.1 billion (€990 million) of dividends out of the company between 2013 and 2015.
The years since the mothballed IPO have seen Digicel’s earnings and cash levels contract, net debt creep up to $6.7 billion (€6 billion), and the group forced late last year into talks with bondholders owed $3 billion (€2.7 billion) to get them to delay getting their money back.
O’Brien defied the sceptics by managing to secure a deal in January, with almost all of the bondholders who were originally due to be repaid in 2020 and 2022 swapping their notes for debt due two years later.
With a further $1.3 billion (€1.1 billion) of bonds falling due in April 2021, Digicel will have to start looking to tackle this issue again from the back end of this year.
The general markets couldn’t be more favourable for companies raising debt. With market interest rates – or yields – across the bond markets at historic lows as central banks embark on another round of monetary easing, junk bonds are all the rage as investors seek to avoid negative rates attached to higher-graded debt.
Debt
But going back to his once-beloved junk bond market doesn’t appear to be an option for O’Brien as things stand. The levels at which some of Digicel’s current debt is trading suggests that there is little or no equity cushion currently in the business.
The riskiest $979 million (€881 million) of 2024 bonds Digicel are currently changing hands at a little over 17 US cents on the dollar. Some $937 million (€844 million) of 2022 bonds are trading at 19 cents on the dollar.
"It's probable the company may have to restructure debt again, given its current cash generation cannot support the level of debt," said Omar Zeolla, a credit analyst with Oppenheimer & Co in New York.
Another analyst, who declined to be named, said Digicel needs to lower its debt levels to about $4 billion (€3.6 billion) – or by $2.7 billion (€2.4 billion) – to put itself on a sound fitting. “I think the pulling of the IPO turned out to be unfavourable to the company in retrospect,” he said.
O’Brien is not without options. Digicel Pacific Limited, home of the group’s traditionally most profitable market of Papua New Guinea (PNG), is debt free. With the PNG economy on the mend again, following a difficult few years, Digicel could raise money by floating this unit.
The group could also accelerate asset sales, having inked some sale-and-leaseback deals on mobile towers in recent times. In addition, French telecoms giant Orange has €346 million sitting in an account that is owed to Digicel on foot of a Paris court ruling in 2017 over its abuse of a dominant market position between 2000 and 2005 in the French West Indies. An appeal of that ruling is due to be heard early next year.
O’Brien will need a lot of things to go in his favour in the next 12 months to avoid what analysts at Moody’s say could amount to a “distressed” debt restructuring.
Having pulled the Digicel IPO in 2015 because he thought he was handing over too much of his empire to greedy stock market investors, can O’Brien avert relinquishing a slice to bondholders?
