Telstra’s €1.25bn deal for Digicel Pacific still in play but not guaranteed, says CEO

Australian telco Telstra has reiterated its interest in acquiring Denis O'Brien's Digicel Pacific unit but stressed that a deal is in no way certain.

In an address to shareholders as the company announced full-year results, chief executive Andrew Penn said Digicel Pacific is a "commercially attractive asset" but that discussions about a possible deal to acquire the company are still under negotiation.

“The discussions are incomplete and it is not certain a transaction will proceed,” he said.

“Given the nature of these discussions, I am not able to say more at this stage other than any transaction will have to meet certain financial parameters. These include Telstra’s financial investment being the minor economic portion of the overall transaction with all other capital being resourced on a non-recourse basis,” Mr Penn added.

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Digicel hired Citigroup late last year to advice on a possible sale of its Pacific business, spanning Papua New Guinea to Fiji, Samoa, Vanuatu Tonga and Nauru, after receiving a number of unsolicited approaches for the unit. Telstra, which last month confirmed its interest in the business, has tabled a bid worth an estimated AU$2 billion (€1.25 billion) that would be backed with a loan from the Australian government.

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.

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 a more sustainable level of about $5.3 billion.

China’s interest

Australian media has previously reported that senior figures in the Australian government are concerned about China’s interest in communications infrastructure in the region. Telstra’s interest in Digicel is believed to be a direct result of the Australian federal government’s wish to see the company acquired by the telecoms giant.

Mr Penn again stressed that while Telstra is keen to acquire Digicel it will only do so if it makes sense to shareholders and delivers an adequate financial return.

“Digicel Pacific is a commercially attractive asset, enjoying a strong market position in the South Pacific region. It generated earnings before interest, taxes, depreciation and amortisation of $235 million in calendar 2020 with a strong margin and has an extensive network,” said Mr Penn.

“But let me also strongly reiterate the comments from our chairman that we will only proceed with a transaction if it is in the interests of our shareholders,” he added.

Under its proposed bid, Telstra would spend up to AU$2,300 million 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.

Telstra on Thursday reported total income of AU$223.1 billion for the 12 months ending June 30th, down 11.6 per cent on the prior year. Earnings before interest, taxes, depreciation and amortisation totalled AU$27.6 billion, 14.2 per cent lower than the same period in 2020. – Additional reporting: Agencies