Digicel's revenues fall while debt burden increases

By Al Edwards

Friday, March 22, 2019

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Regional telecoms provider Digicel has seen its revenues for the fiscal third quarter to the end of December 2018 fall to US$572 million, a four per cent drop on the same period in the previous year.

Founded by Denis O'Brien, Digicel has recently been grappling with a huge debt burden of some US$6.7 billion, forcing it to restructure its bonds and play for time as it gets its house in order.

For the three-month period to the end of December 2018, its debt mountain grew to 6.8 times EBITDA, despite declaring that it intends to lower its debt from 6.7 times EBITDA to 5.7 by the end of March 2019, via a greater reliance on data and digital products.

Digicel's EBITDA fell marginally to US$241 million, a two per cent decline due in the main to currency fluctuations in markets where it holds a leading position.

When the Jamaica Observer contacted Digicel for comment, a company representative said that Group CFO David Lomas was unavailable to speak on these latest financial numbers.

Causing concern to bondholders is that for the three months to the end of December 2018, Digicel's cash levels dropped precipitously to just US$96 million.

Executives at Digicel attribute this to a tax payment made on the sale of a number of towers last September and an injection of working capital in an effort to boost sales.

Digicel has undergone a number of management changes in recent times, with a cadre of senior executives from Russian-backed company VEON brought in to steady the ship.

The unfortunate death of former Digicel Group CEO Alex Matuschka Von Greiffenclau (formerly of VEON) at the age of 47 in December last year led to the appointment of former CEO of VEON, Jean-Yves Charlier, earlier this year. Charlier was appointed to the Digicel Group board in September 2018. At this time it is not known whether Charlier will be based at Digicel's headquarters in Kingston, Jamaica.

Rating agency Fitch has said that Digicel may well face higher refinancing costs, which may become a vexing issue.

“Digicel finds itself in a tough spot but Denis O'Brien has come out of many tough spots and always seems to thrive when doing so,” Sterling Capital's Sebastian Delahaye told the Jamaica Observer. “Let's not forget he enjoys the confidence of the bondholders who have backed his ability to turn things around. I think we will all get a clearer picture of how things are looking at the end of the fiscal year, which occurs in a few weeks.

“Natural disasters, currency volatility, and political tensions are the hotbeds Digicel has to contend with — making matters even more difficult when you have to pare down nearly US$7 billion in debt,” he told the Business Observer.

“I think the key here is to divest more non-core assets and operate a lean operation that focuses on telephony and data.

“There is a lot of consolidation in the region and rightly so. Recently, Liberty Latin America was looking to acquire Millicom and earlier this year Carlos Slim's America Movil bought Telefonica's Guatemala and El Salvador's operations for US$650 million.

“Perhaps America Movil may fancy a Caribbean arm with an English-speaking component, or VEON a footprint in the Americas which would then make Digicel, with its 14 million subscribers, a proposition worth considering,” Delahaye added.

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