Cantillon:Digicel's decision to increase its latest capital raising to $1 billion from $700 million follows a familiar pattern at the mobile phone company.
It announces a figure, quickly tests the demand for the debt issuance, and then increases the size of the offering.
Global credit markets might still be constrained at present but there remains a huge appetite for Digicel’s debt.
Digicel Limited, the entity conducting this capital raising, will have gross debt of $3 billion once this issuance is complete.
In addition, parent company Digicel Group Ltd (DGL) has $2.275 billion in bonds outstanding with investors.
The latest capital raising by Digicel has heightened speculation that it might pay another significant dividend to Denis O’Brien, its founder and chairman who owns about 94 per cent of the group on a fully-diluted basis.
The prospectus for the $1 billion fund raising states that Digicel intends to use the proceeds to repurchase $510 million in senior notes that are due to be repaid in 2014.
Digicel Ltd is offering to pay $1,068 for every $1,000 in issuance so the total cost of redeeming these notes would be $545 million.
The net proceeds from the bond offering, after various fees are deducted, is expected to be $990 million.
What will Digicel do with the balance of $445 million?
The prospectus states that the funds will be used for “general corporate purposes”, including dividends to its parent company DGL.
DGL might then pay a dividend to Mr O’Brien, who owns 94 per cent of Digicel on a fully diluted basis.
In the year to the end of March 2012, DGL paid a dividend of $115 million to shareholders. Subsequent to that year end, DGL paid an additional $310 million to its owners.
Another healthy dividend from DGL would be timely for Mr O’Brien given that he needs to refinance his loans with the liquidators of IBRC or face having them placed with the National Asset Management Agency.
He might also be required to kick in some funding to the financial restructuring of Independent News & Media, where he is the biggest shareholder.
Homeowners fine may be wide of mark
Reports that recalcitrant homeowners may face €100 a day fines if they ignore letters from the Revenue Commissioners regarding the property tax may be a little wide of the mark.
Section 151 of the Finance (Local Property Tax) Act 2012 – does indeed provide that if a “a relevant person” does not supply information needed by the Revenue Commissioners to allow them establish and maintain a register and administer the property tax then that person “shall be liable to pay a penalty of €100 for each day the failure continues after the time limit specified in the notice”.
The key issue here is what constitutes a relevant person and they are helpfully listed in section 153 and comprise pretty much every state agency, company or Government department that might have useful information.
They include the Ministers for Social Protection, Agriculture, Environment, Communications and Transport as well as the HSE, An Post, the Private Residential Tenancies Board, Nama etc. What it does not include is a reference to the 1.6 million homeowners who are due to get a letter in them next two weeks asking them to value their homes or accept the Revenue Commissioners valuation.
The sanction for not replying to this letter is much more straightforward than a €100 a day fine. A non-response will be treated as an acceptance and the Revenue Commissioners will go about collecting the tax.
Hayes cements place in firm’s affections
The comments made yesterday by the Minister of State at the Department of Finance, Brian Hayes, at the opening of the Ecocem bagging plant in Dublin, must have been music to the ears of the cement company.
Hayes (below, centre, with Conor Ó Riain and John Newell of Ecocem), by way of his responsibility for the Office of Public Works, is a key player in the upcoming guidelines the OPW is to publish on so-called “green procurement”.
As the public sector accounts for approximately 40 per cent of the cement used in the Irish economy, any shift in its procurement practices towards the use of more eco-friendly cement will be a huge boost for Ecocem.
Hayes said yesterday that the OPW has a “huge responsibility” in terms of setting standards across the public sector and pointed out that decisions as to what type of cement was used in construction was a “crucial ingredient” in Ireland achieving its target for further reducing CO2 emissions by 20 per cent by 2020.
The more traditional cement-making businesses in Ireland – Irish Cement, Quinn Cement, and Lagan Cement – have huge overcapacity arising from the splurge on building that took place during the bubble years, and the thought of the biggest customer on the island shifting to a policy that will favour Ecocem must be a very unwelcome prospect.
Historically the Irish cement sector, like its counterparts across Europe, has had a close relationship with the State and it will be interesting to watch whether its powerful public lobbying machine can manage to alter the rather straightforward message that came from Hayes yesterday.
The new procurement guidelines are expected by the middle of this year and the industry will get its answer then.
Change, should it come, will most likely take time but as matters stand it looks as if a return to life of the Irish construction sector may not necessarily lead to a proportionate increase in business for the traditional cement sector.
Today
European Commission president José Manuel Barroso will address an Ibec conference in Dublin.
He will place a particular focus on employment policies for unemployed young people.
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