Business

Digicel to raise US$500 million

Expected to use portion of cash from bond sale to finance investment in Myanmar

BY STEVEN JACKSON Business Writer jacksons@jamaicaobserver.com

Friday, December 13, 2013    

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TELECOM provider Digicel Group plans to raise US$500 million in its latest bond offer aimed at providing working capital and expansion financing.

Concurrently, rating agency Moody's affirmed the telecom's rating at stable — B2, adding that it will likely use the bond proceeds to finance its joint venture in Burma, otherwise known as Myanmar.

"We believe Digicel will use a portion of the proceeds to finance the investment in its newly created joint venture that will construct and lease-up 1,250 wireless towers in Myanmar (Burma) with Ooredoo QSC as the anchor tenant," indicated Moody's in its rating released Wednesday.

Ooredoo, a Qatar-based telecommunications carrier, was awarded one of two licences in July 2013 to provide mobile communications services in Myanmar.

Digicel plans to issue up to US$500 million in bonds at 8.25 per cent to 2020 which will add-on to Digicel's existing $1.5 billion 8.25 per cent senior unsecured notes due 2020. The telecom told prospective investors in a release this week that it will use proceeds of the offering for "general corporate purposes, which could include capital expenditures, investments, acquisitions or debt repayment".

Digicel will not seek to raise funds in the US which will apparently obviate the disclosure of financials for the private company incorporated in Bermuda and owned by Irish investor Denis O'brien. Digicel, which operates in 30 markets throughout the Caribbean, El Salvador and the South Pacific, reported an eight per cent rise in revenues to US$2.78 billion for the year ending 31 March 2013. Additionally, EBITDA (earnings before interest, tax, depreciation and amortisation) hit US$1.2 billion or 11 per cent higher year on year.

"The notes have not been and will not be registered under the US Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements," indicated Digicel in a release on the notes.

Antonia Graham, Digicel Group head of communications, reserved comment until a later date.

For its financial year, subscribers increased one per cent to 12.9 million across the 30 markets, with strong performance in Haiti, Papua New Guinea, Trinidad & Tobago and Suriname, the company said. The number of markets in which it operates increases its diversification. However, nearly half of its revenues are generated in challenged markets, indicated Moody's.

"While the company continues to have strong geographic diversification, this is mitigated by its exposure to Jamaica (about 14 per cent of total revenue), which is struggling to revive its economy and experiencing competitive telecom pricing, following the implementation of a new regulatory and tax scheme designed to increase government receipts. Further, slowing subscriber growth, lower pricing plans and adverse foreign currency movements relative to the US dollar in Digicel's three largest geographies (Jamaica, Haiti and Papua New Guinea) accounting for over 45 per cent of revenue, have resulted in flat year-over-year revenue growth for the six months ended September 2013," indicated Moody's, which later indicated that revenues over twelve months ending September hit US$2.8 billion.

Moody's continued indicating that "Digicel's good liquidity supports the rating". The rating agency expects Digicel to end the financial year 2014 with cash balances of roughly US$650 million compared to approximately US$1 billion as of September 2013.

"We expect free cash flow over the next 12 months to be negative due to a sizable US$650 million special dividend payment (payable within the next 6 months) and rising capex requirements to support greenfield network expansions in Haiti and Papua New Guinea, 4G rollouts in the Caribbean and Pacific geographies and new tower builds in Myanmar," indicated Moody's.

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