Denis O’Brien’s Digicel to raise $925 million to fund debt buyback

Digicel, the Caribbean mobile operator owned by Denis O'Brien, plans to raise $925 million in unsecured loan notes to fund a buyback of more expensive senior debt.

The fund raising will also give the company flexibility to pay a dividend to Mr O’Brien, who has taken more than $1 billion off the table at Digicel in recent years.

Digicel Limited, the Bermuda-based entity raising the debt on behalf of the group, said it will use the cash to buy back the expensive senior loan notes, issued in 2009 with a coupon of 8.25 per cent.

According to Bloomberg, $800 million of those notes were issued, leaving Digicel with a surplus of at least $125 million if it manages to buy back all of the debt it is targeting. The bonds were trading at $102.2 last night.

The company has, in past bond offerings, paid substantial dividends to Mr O’Brien and a handful of other minority shareholders from the proceeds of loan note sales. Along with minority shareholders, he received a payout of about $650 million last year, and more than $500 million in the four previous years.

The company told prospective debt investors that some of the proceeds of the latest bond offering would be used for “general corporate purposes”, which would allow it to pay a dividend to Mr O’Brien, if the company chooses. It could also retain the cash on its balance sheet to fund acquisitions.

Dividend

When asked by

The Irish Times

if any of the cash raised from the current loan note offering would be used to pay a dividend to Mr O’Brien, the company would only point to its statement referencing general corporate purposes.

The ratings agency Moody’s on Tuesday assigned a B1, so-called “junk” rating to the latest loan notes, which will be due for repayment by 2023.

“Digicel’s history of debt funded acquisitions and sizable dividend payments weigh down the rating,” said Moody’s.

The ratings agency also highlighted concerns over Digicel’s reliance on the Jamaican market, which accounts for about 15 per cent of Digicel’s $2.8 billion annual revenues.

“[Jamaica] is struggling to revive its economy and experiencing competitive telecom pricing following the implementation of a new regulatory and tax scheme designed to increase government receipts,” said Moody’s.

“Further, slowing subscriber growth, lower pricing plans and adverse foreign currency movements relative to the US dollar in Digicel’s three largest geographies (Jamaica, Haiti and Papua New Guinea) accounting for over 45 per cent of revenue have resulted in flat year-over-year revenue growth.”

The agency said, however, that it expects the company’s expansion into cable television and business services to be successful.

Digicel is currently in the midst of an intensive cross-Caribbean campaign against a proposed $3 billion takeover by Cable & Wireless of the cable company Columbus Communications, which would threaten its growth in the area.