Having announced that they will be upgrading their credit rating of Digicel, international credit ratings agencies, Fitch and Moody's have hinted that the revised rating might not be so favourable as expected.
This latest pending assessment comes as the Jamaican-based regional telecoms has struck a US$1.85 billion (€1.6 billion) deal to sell its Pacific unit to Australian telecommunications company Telstra Corporation Limited.
Fitch has indicated that the improved credit worthiness of Digicel will be limited as a result of its “aggressive” manoeuvres to restructure its debt pile twice in recent years.
It is also expected Digicel will look at the earliest opportunity to redeem what remains of a type of bond issued last year to certain creditors, as part of the debt restructuring — convertible into an almost half equity share in the company if they are not taken out by June 2023.
Some US$190 million of these bonds remain outstanding— equating to a potential 44 per cent stake after Digicel bought back some US$10 million of these notes late last year.
With US$250 million of the US$1.85 billion sale amount being subjected to Digicel meeting certain earnings targets in the coming years, it has been reported that Digicel plans to use most of the upfront proceeds to redeem its US$1.05 million of senior secured notes that would ordinarily fall due in 2024.
Most of Digicel's US$425-million senior unsecured notes are set to mature in 2025.
Digicel struck a deal with certain bondholders in early 2019, after months of hard negotiations to delay getting their money back, as it struggled under a then US$7 billion-plus debt mountain and declining earnings.
Last year, the regional telecoms company targeted bondholders again, negotiating a $1.6 billion debt write-down, which the company argued that creditors would fare worse if it went into liquidation.
Given the foregoing, the Irish Times is reporting that Moody's has indicated that its review may lead to a “multi-notch upgrade” from its current Caa2 Digicel rating, which is seven levels below what is classified as investment grade. Fitch has signalled it may upgrade its Digicel rating from a similarly low “junk bond” level.
In the meantime, Fitch has warned that Digicel's “aggressive corporate governance” in pursuing debt restructuring deals in the past two years, “remains a constraint” on the upside for the ratings.
The ratings agency remarked that “The group has a concentrated ownership and control structure along with a complex group structure that weakens both Digicel's corporate governance and the group's consolidated credit profile.”
Analysts say it is unlikely that Digicel will return in the interim to paying its founder, Dennis O'Brien, dividends, which have been on hold since 2015, as the group grappled with its finances, according to industry observers.
Digicel hired investment bankers in Citigroup late last year to advise on a possible sale of the Pacific operations, spanning Papua New Guinea to Fiji, Samoa, Vanuatu Tonga and Nauru, after receiving approaches for the business.
After the sale, Digicel will be active in 25 markets across the Caribbean with leading mobile shares in most.