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Digicel gets back to positive earnings

After successive quarters of unimpressive earnings, Denis O’Brien’s Digicel returned to positive earnings in the December quarter with US$251 million, a four per cent increase year on year.

The Digicel headquarters in downtown Kingston. (Photo: mapio.net)

A significant contributor to this performance was mobile data revenue which is proving a winner for the telecoms company. This segment registered a 10 per cent increase year on year.

This third quarter performance spells progress and sees Digicel climbing out of the doldrums which should comfort its bondholders.

“Fluctuating currencies and the decline in revenues from voice have been impediments but we have looked to other business arms which are now bearing fruit.”

– Digicel executive

Digicel reduced its debt ratio to 6.8 times Earnings Before Interest, Taxation, Depreciation Amortisation (EBITDA) coming from 7.3 times EBITDA last year.

However, its cash position continues to decline and for the quarter under review stood at just US$126 million, a drop from the US$180 registered in September.

In recent times, Digicel has been plagued by huge debt with some of the leading rating agencies declaring it unsustainable. The debt currently stands at US$6.8 billion.

Speaking to Caribbean Business Report, a Digicel executive said: “We have endured beatings from the press both in the Caribbean and internationally but we have been working assiduously and strategically to redress our recent performances. Fluctuating currencies and the decline in revenues from voice have been impediments but we have looked to other business arms which are now bearing fruit. Digicel remains resilient and this is demonstrated by this performance.”

Digicel Group Chairman Denis O’Brien (Photo: Irish Times)

Digicel has a US$1.3 billion bond payment due early next year and will have to answer to its bondholders who have been patient and continue to place confidence in Denis O’Brien’s abilities to turn things around. The 2021 notes are now trading at around 80 cents on the dollar.

According to media reports, Digicel is exploring forming a network-sharing partnership as it looks to reduce its near US$7 billion debt. With cash levels dwindling, a network sharing arrangement may well be a prudent way to reduce costs.
Last year, Digicel pulled in around US$150 million from mobile tower sales in some of its markets.

Many analysts and business writers are of the view that Digicel has three options:

  1. O’Brien will have to inject fresh capital into the business
  2. Undergo an asset sale which will see some parts of the Group sold
  3. Renegotiate with bondholders for more time