Report questions Digicel viability

Digicel, the mobile carrier company controlled by Denis O’Brien, is facing an uncertain future due to high debt, currency fluctuations, and change in consumer behaviour, says a report by independent research provider CreditSights.

In a presentation delivered on Wednesday in London — entitled ‘Digicel: should I stay or should I go’ — CreditSights analyst Michael Chakardijan said the company’s high debt levels — more than $6bn (€5.74bn) left little room for manoeuvre.

“W e view that there is limited-to-no equity cushion. This gives the company little wriggle room for poor performance and there is not an immaterial threat of distress in the event of poor results in key markets,” he said.

Digicel, which operates in 32 markets in the Caribbean and South Pacific regions, has outlined ambitious plans to try to cut its debt.

The company said it “fundamentally disagrees” with CreditSights’ conclusions, adding “Digicel’s outlook remains positive with robust plans to delever by monetising our network investment and through realistic cost- management initiatives”.

However, Mr Chakardijan is doubtful that the company will be able to succeed in its ambitious debt-reduction exercise.

Digicel is focusing on growing its earnings in order to reduce the company’s debt to earnings ratio while cutting costs at the same time.

The company aims to return to growth in the year to March 2018 as its massive expenditure programme on cable and fibre roll out begins to bear fruit. The plan involves increasing margins by 24 percentage points by March 2018, while cutting costs by using technology and changing back office functions.

Mr Chakardijan described these plans as “highly ambitious” and “opaque” and doubted management’s ability to deliver.

“We believe management’s deleveraging plans come with substantial execution risk, which is a very important point,” he said.

Another issue that he highlighted that may hamper management’s ability to deliver is that Digicel’s users’ habits are changing. The company has been suffering from a decline in phonecall revenue as users switch to the likes of Viber, WhatsApp, and Skype.

The final headwind that Digicel faces is the currency exchange market.

One of its larger markets, Papua New Guinea, recently applied to the IMF for a loan and there is a possibility that the country may be forced to devalue its currency.

Digicel has two loans maturing in the near future. A $210m loan is due to be repaid in March 2018 while $90m in project finance debt on its South Pacific business will mature in August 2017.


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