Digicel talks on Pacific entity sale drag due to Covid-19 restrictions

A potential deal for Denis O’Brien’s Digicel telecoms group to sell its Pacific operations is set to drag into the second half of the year, as Covid-19 travel restrictions across the region have made it difficult for suitors to carry out site visits.

While there had been an expectation that a deal could be announced by the time Digicel reports results next month for its financial year to the end of March, sources now say that it will be well into the second half of 2021 before an outcome is reached.

Digicel hired Citigroup late last year to advise on a possible sale of the Pacific business, spanning Papua New Guinea to Fiji, Samoa, Vanuatu Tonga and Nauru, after receiving a number of unsolicited approaches for the unit.

It could be worth about $2 billion (€1.65 billion), industry sources said at the time, based on the division’s earnings before interest, tax, depreciation and amortisation (ebitda) of $230 million for year to March 2020. Telecoms companies are currently valued at an average of eight to 10 times ebitda.

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Digicel Pacific is the least indebted part of the wider group which convinced bondholders last year to write off $1.6 billion of debt to bring borrowings down to more sustainable level of about $5.3 billion.

A liquidation analysis by KPMG for Digicel before the debt restructuring talks started in April last year indicated that Digicel Pacific was the only part of the empire that would raise money in a wind-up scenario. It concluded that the unit's assets could generate up to $615.2 million in a fire sale.

A sale of Digicel Pacific would further reduce Digicel's remaining debt. However, it is a politically sensitive process. News late last year that several Chinese entities were circling the business, including China Mobile and Huawei, reportedly prompted the Australian government to consider providing financial support to alternative suitors, amid security concerns.