DIGICEL Group's pre-tax profits could take a hit of approximately US$25 million ($2.2 billion) due to difficult market conditions, says Fitch Ratings.
Particularly damaging is the cut in mobile termination rates in Jamaica and the introduction of tax for incoming international calls and outgoing domestic calls, the ratings agency said.
But the anticipated cost is just two per cent of the US$1.1 billion EBITDA (earnings before interest, tax, depreciation and amortisation) reported by the Irish-controlled telecommunications group for the financial year ending March 31.
Furthermore, the credit ratings agency expects the effect to be offset by Digicel's continued growth in two emerging markets, Haiti and Papua New Guinea (PNG).
"Leverage is not expected to materially change considering the effect on EBITDA of new regulation and taxes in Jamaica," Fitch reported.
Digicel acquired Haitian mobile operator Voila from its parent company, US-based Trilogy International Partners, in April for an undisclosed sum. After the deal, Digicel's revenues in Haiti grew by 25 per cent in the quarter to June compared to the corresponding period last year, said the ratings agency.
Voila had been offering services in Haiti since September 1999 and had nearly a million customers at the time of the acquisition. Digicel, which launched in Haiti in 2005, now has over 3.5 million customers there.
Its Digicel Pacific Limited (DPL) subsidiary is now generating positive free cash flow, attributed to growth in EBITDA from PNG. It is part of a broad strategy by Digicel to diversify its cash flow generation and asset base leading to lower business risk, said Fitch.
"Growth in EBITDA from PNG should further diversify cash flow generation from Jamaica and Haiti in the coming years, as cash flow coming from these two countries remains material at an estimated 40 per cent," said the ratings agency.
DPL contributed approximately 21 per cent of EBITDA for the group over the 12 months ended June 30, reported Fitch, which listed Jamaica, Haiti, PNG, Trinidad & Tobago and French West Indies as the most important contributors to the group's earnings.
Digicel announced earlier this week that it was seeking to raise US$700 million through a private placement of senior notes due in 2020. The proceeds from the issuance are expected to be used to refinance 9.125 per cent and 8.875 per cent senior notes due in 2015.
Digicel raised the offer due to demand yesterday, eliminating the maximum tender amount that applied to purchase the senior notes. The company is now offering to purchase any and all of the outstanding senior notes that are validly tendered and accepted for purchase in the tender offer.
Fitch had given Digicel's 2020 senior notes a 'B-' rating.