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Digicel disagrees with report its debt is unsustainable

Published: 
Thursday, December 22, 2016

Regional telecommunications provider Digicel says it “fundamentally disagrees with the conclusions of the report” done by CreditSights debt analyst Michael Chakardjian that the group’s debt of US$6.2 billion in debt is at “unsustainably high levels” as it is 6.2 times earnings before interest, tax, depreciation and amortisation (ebitda) at the company.

Several Irish newspaper last week reported on a presentation by Chakardjian in which he concluded that despite having 14 million customers across 32 markets in the Caribbean, Central America and the Pacific, Digicel was facing a powerful cocktail of currency risks, economic threats and “cash burn” due to declining revenues from mobile calls and the ongoing need to pump cash into its fibre network, as the Irish Times reported on Saturday.

According to the newspaper:

“The analyst identified four separate threats facing the company, which O’Brien tried and failed to float on the stock market 14 months ago.

“Firstly, Chakardjian calculated there is ‘limited to no equity cushion’, with a debt more than six times its earnings.

“He is suggesting here there is currently little value over and above what it owes lenders. If Digicel were a house, it would effectively be on the verge of negative equity.

“Secondly, he is sceptical about the company’s plan, dubbed Project Swan, to hack back costs to boost margins.

“The third stick with which he beats Digicel is its prospects for revenue growth. Voice calls account for more than half its income but, like the rest of the industry, are falling fast. Data, fibre and cable are currently not growing fast enough to plug the gap.

“Finally, it is suggested that some of Digicel’s fate is outside of its control. Beyond normal competitive threats that come with operating in risky market, Digicel faces enormous currency headwind.”

The Irish Times explained that Digicel’s debts are in US dollars, but it is trying to pay them off in weakening currencies from Haiti, Papua New Guinea, and Jamaica, which are among its largest markets.

Responding to the debt analysis, the telecommunications company said: “Digicel fundamentally disagrees with the conclusions of the report.

“Digicel’s outlook remains positive with robust plans to delever by monetising our network investment and through realistic cost management initiatives. We will not be commenting on the specific details of our transformation.”

Delevering refers to reducing debt levels.

The Irish Times reported at the end of November that Digicel executives had pitched a plan to investors and analysts earlier that month to cut its debt ratio from 6.2 to 4.5 times ebitda by March 2019 as it sees profits finally rebounding in its next financial year after investing US$2.3 billion in its network over half a decade.