On Monday morning, November 23rd, Digicel Limited jumped back into the international bond market with an offer to sell U.S. $500 million in corporate bonds. This was closed that same afternoon with firm commitments from investors for the full amount, with market sources advising that the offer had been about two times oversubscribed, or a total of about US$1 billion in demand. The bonds, which have a coupon of 8.25%, were priced below par (par being equal to 100) at 98.625. Based on their maturity in 2017, they would yield investors 8.5% per annum.

The proceeds of the offering will be used to repurchase Digicel’s outstanding U.S. $450 million 9.25% senior notes due in 2012 (originally issued in 2005 and 2006) by way of a tender offer or redemption, with the balance retained for general corporate purchases.

The transaction was officially finalised ten business days after the offer on December 8th. According to Digicel Group CEO Colm Delves, the majority of the between 60 and 70 accounts were U.S. high yield institutional investors (rather than emerging market investors), based in New York, Boston, and the U.S. West Coast (Los Angeles), with the European investors coming through London. Although they had managed to raise the money two days before the events in Dubai, which had not affected the offer, his experience was that the pure emerging market investors were more “cyclical” in their interest.

The offer did not require a road show. According to Delves, this was because, unlke many other emerging market corporates, Digicel had been proactive in marketing to its investors right through the crisis. For example, it had brought about twenty of them to Jamaica in October. Digicel had also ticked all the right investor boxes – namely it was generating cash, still growing, and had diverse businesses.

For example, Digicel had reported a 10% increase in its half year (1st April to 30th September) EBITDA profit (earnings before interest, taxation, depreciation and amortisation) from U.S. $330 million to U.S. $364 million, on sales of U.S $857 million. Free cash flow had grown from U.S. $58 million to U.S. $141 million.

Despite the recession, their revenues continued to grow. The region wide negative impact of reduced tourism on their revenues of around 1% had been more than offset by a combination of organic growth and increased value added services. Subscribers had grown by half a million, from 6.8 million to 7.3 million, with year on year post paid growth of 19% being particularly strong, driven primarily by the growth in blackberry ownership. According to Delves, Bermuda now had the highest number of users per capita in the world.

The large number of markets, 26, in which Digicel operates means that it is economically diversified. It has natural currency hedges from the combination of the richer dollar linked Caribbean markets such as Bermuda, the Euro currency markets of the French West Indies, and poorer markets such as Haiti. Delves noted that some of their poorer markets, such as Haiti, have actually been less affected by the economic crisis as they had not benefited from the economic boom preceding it. He noted the Haitian gourd had actually risen against the U.S. dollar this year.

Jamaica

Digicel Limited was now more highly rated than Jamaica’s sovereign debt, with Moody’s Investors Service having assigned a B1 rating to the new $500 million (face amount) of senior unsecured notes issued by Digicel Limited.

Whilst Delves noted that a number of their bond investors had asked about Jamaica’s economic situation, particularly the state of its negotiations with the IMF and the prospects for our currency, he argued that investors did not see Digicel’s fortunes as being driven by the performance of Jamaica. After last years sharp devaluation of the Jamaican dollar, revenues had declined in U.S. dollars, with Jamaica now representing only 25% of the groups overall revenues.

However, despite the impact of new competitors such as Claro, Delves stated that their Jamaican operation was still adding customers, that customer minutes were up by one third, and that revenues had grown by 3% on a constant currency basis.