In a Caribbean Business Report follow-up, regional telecommunications giant, Digicel is currently evaluating its refinancing options over part of its debt pile, which currently stands at around US$7 billion (€6.35bn).
The Jamaican-based company issued a statement on the weekend in Ireland, confirming the evaluation of its refinancing options amid mounting debts and falling revenues. The statement follows questions from The Sunday Independent publication in Ireland regarding a credit downgrade from internationally renowned rating agency, Fitch.
Ireland is the home base of Digicel’s founder, Denis O’Brien.
Fitch reported that the rating downgrade was related to Digicel’s “unsustainable capital structure” and an imminent refinancing risk on US$1.3 billion worth of bonds due in April 2021. Fitch said it expects that Digicel will have to restructure debt at multiple levels in the next 12 to18 months, due to the Group’s unsustainable capital structure and imminent refinancing risk.
Fitch raised concerns about Digicel’s ability to finance its huge debt of US$7 billion from what many analysts see as lacklustre operating performances. However, The Sunday Independent quoted a spokesman for Digicel on the weekend saying the company’s operational initiatives to stabilise and grow its mobile business are now delivering tangible, positive results in local markets and this week will reaffirmed its guidance for a continuation of this trend for the financial year 2020.
“On an investor call this week, Digicel told investors its leverage ratio is starting to come down and it is currently evaluating its refinancing options and will not be commenting until that evaluation has concluded,” the spokesman added.
Sul Ahmad, a primary analyst for Fitch, told The Sunday Independent that Digicel could struggle to refinance some of the bonds. He said this could trigger default or insolvency proceedings at some of the other levels.
Last week The Caribbean Business Report reported that Digicel saw its earnings marginally fall to US$249 million for the second quarter. It was also reported that Digicel’s debt levels now stand at 6.9 times earnings before interest, tax, depreciation and amortization (EBITDA).
This was an improvement coming from a level of 7.3 in the previous quarter. Digicel saw a nine per cent uptick in cash flow derived from operating activities, as it continues to reap rewards from its data business. This arm’s revenues has now surpassed that of its once core business, voice on mobile handsets.
For the September quarter, Digicel had US$180 million in cash, a decline from the US$214 million reported in the previous quarter. The most immediate concern is Digicel’s US$1.3 billion notes maturing in April 2021, which Fitch believes the company will struggle to refinance amid stagnant operating performances.
One of the factors affecting Digicel is the volatility of some Caribbean currencies particularly in two of its biggest markets, Jamaica and Haiti.
— Durrant Pate