A week after telling bondholders that it aims to complete the sale of its Pacific business to Australia-based Telstra, Digicel on Thursday announced that the sale is now complete and that it has pivoted its focus on the 25 markets in which it remains in the Caribbean and Central America.

The deal was originally expected to be wrapped up “in early March”, according to Digicel Group Chief Executive Officer Oliver Coughlan in an exclusive interview with the Jamaica Observer in early February. However, weeks later on March 25, a spanner was thrown into the sale with the Papua New Guinea Government imposing an exit tax on Digicel.

This prompted Digicel Group Chairman Denis O’Brien to warn bondholders in early April that the timing of its planned sale of the Pacific business, dominated by its Papua New Guinea (PNG) operation, could be affected by what was described as a “new arbitrary, company-specific tax Act” in PNG that had effectively landed Digicel with the tax liability.

However, with the Jamaica-based telcoms now reporting that it has agreed to enter into a binding international arbitration process to resolve the disputed one-time PGK350 million (approximately US$99.4 million) exit tax and to waive a further PGK50 million (approximately US$14.2 million) sought in respect of non-payment of the tax to date, the deal has moved ahead.

PGK is the shortening of the Papua New Guinean kina — the official currency of the Papua New Guinea.

There were reports in the Australian press in the middle of May that Digicel was looking for the Australian Government, which is providing much of the funding for the Pacific unit purchase, to potentially cover the surprise tax bill in an effort to save the deal. However, Digicel dismissed these as “baseless and untrue”.

The company now says that “as part of this [sale] process, US$99.4 million has been placed in escrow on closing pending the outcome of the arbitration which will take place in Singapore.”

With that matter sorted, Digicel Group in a release on Thursday announced “completion of the sale of Digicel Pacific Limited, its wholly owned subsidiary, to a subsidiary of the Australian telecommunications company Telstra Corporation Limited, with funding from the Australian Government, through Export Finance Australia”.

The transaction values Digicel Pacific at up to US$1.85 billion, inclusive of a three-year, US$250-million earn-out. A payment of US$1.6 billion, before deductions for customary working capital and other adjustments, is payable to Digicel Group upon closing of the transaction. Digicel expects to achieve a payment of US$50 million in respect of the first earn-out period, which is based on service revenue performance for the year ended March 31, 2022.

“Having established our Pacific operations as a business start-up in 2005, we depart with enormous pride in a team that has made affordable best-in-class communications available to more than 10 million people across six of the most exciting economies in the region,” O’Brien said in a company release about the completion of the sale. “I am deeply grateful to all our colleagues who contributed to this success and in particular, to our 1,700 staff in the Pacific who I know will continue to represent the Digicel brand with pride under new owners Telstra. We wish them every continued success for the future,” he continued.

Coughlan, who served as CEO of the Pacific business before he was promoted to being Digicel Group CEO in June 2020, said, “Post this transaction, Digicel is well positioned to support continuing growth in our well-invested networks in our 25 markets in the Caribbean and Central America.”

A company representative told the Caribbean Business Report that Digicel is “very happy with the Pacific deal” and as it turns to the Caribbean and Central America, it will continue to roll-out its fibre, LTE and Digicel Plus offerings.

Telstra said last October it would buy the Pacific operations of Jamaica-headquartered Digicel in a deal seen by observers as a way to block China’s rising influence in the region. The operations include 2.5 million mobile phone subscribers across Papua New Guinea, Fiji, Vanuatu, Tonga, Samoa, and Nauru.

Digicel agreed last October to sell its Pacific unit for US$1.6 billion upfront to Melbourne-based telecoms company Telstra, as it seeks to further reduce its debt burden, following a restructuring of borrowings in 2020 that saw bondholders write off US$1.6 billion of what they were owed.

Digicel had a net debt pile of US$5.8 billion as of the end of March, according to a recent report in the Irish Times which cited undisclosed “sources” for the information.

The value of US$925 million of its bonds that fall due in March 2023 fell 37 per cent to just over US$0.60 on the dollar over the course of the first six months of this year, amid mounting concerns about the telecom group’s ability to repay the debt. Fitch, one of the world’s leading credit ratings agencies, said in a note last month that Digicel “faces significant refinancing risk” with the 2023 bonds.

Still, the full-year earnings release and outlook for the company’s current financial quarter was relatively upbeat, even as investors remained concerned about its exposure to emerging markets and currencies in a weakening global economy as well as mounting turmoil in the US junk bond markets, traditionally Digicel’s main source of funding.

Digicel’s reported service revenues for its financial year to the end of March rose 4 per cent to US$2.2 billion, while its earnings before interest, tax, depreciation and amortisation (EBITDA) grew at the same pace, to US$972 million.

The company’s reported fourth-quarter revenue rose 3 per cent to US$556 million, as unfavourable movements by some currencies of its markets wiped out much of Digicel’s 10 per cent increase in underlying revenue. Foreign exchange movements also saw a 9 per cent increase in underlying ebitda being reduced to a flat reported performance.

Digicel told bondholders that it expected its underlying revenues for the current quarter to rise 8-9 per cent, and that earnings should expand at about half that pace. A spokesman for the company declined to comment on the results or what was discussed on the call with bondholders.