Telstra bid for Digicel Pacific based on achieving ‘adequate financial return’

Australian telecoms giant Telstra’s two billion Australian dollars (€1.25 billion) bid for Digicel’s Pacific operations will be based on getting an “adequate financial return”, according to its chairman John Mullen.

Mr Mullen told a superannuation investors conference the idea of buying the Denis O’Brien-owned Digicel Pacific was not initially on Telstra’s radar but discussions have taken place because of the Australian federal government’s interest.

“Would it have been something one would have gone further in discussion with, if it wasn’t a government interest? Probably not,” Mr Mullen said. “But if something does come of this it will be because we can meet both government expectations and financial returns for the company. If we can’t do both of those then it won’t happen.”

He added that Telstra would “not be making any investment that does not make sense for its shareholders and deliver an adequate financial return”.

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“That said, can you help your sovereign government in times, particularly if you’re a critical infrastructure provider? Well of course you can.”

Bid details

Under the bid, Telstra would spend up to 300 million Australian dollars while the government would provide a loan for the rest. The loan, at a rate of 3 per cent, would come from the government’s export credit agency, which can provide loans and guarantees to Australian businesses for projects outside the country.

Chinese-owned telco operators including China Mobile and ZTE are also reportedly interested in buying Digicel Pacific, which has 3G and 4G mobile phone networks and access to undersea cables.

The Sydney Morning Herald newspaper has reported senior figures in the government are concerned that the possibility of China interest in communications infrastructure is being used to get money from taxpayers.

Commercial objectives

Asked whether the government could guarantee taxpayers would not lose money on the proposal, Australia’s prime minister Scott Morrison said “that’s a matter between [Telstra chief executive Andy Penn] and his shareholders. They have commercial objectives which they pursue, and I wouldn’t expect them to be doing anything that wasn’t in their commercial interests”.

Japan’s ambassador to Australia Shingo Yamagami did not rule out Japan also becoming part of the deal. He said there was already much cooperation in the Pacific between Australia, Japan and the US.

“Japan is subscribing to this idea of a free and open Indo-Pacific. And this idea involves making sure each nation in the region has access to quality infrastructure,” he said. “And with that in mind I think there is a lot of room for us together.”