Digicel posts US$198 million net loss
Tuesday, January 28 2014 @ 12:00 AM AST
Contributed by: AleemKhan
Although its revenue has been increasing, mobile operator Digicel Group Limited reported its first net loss in three years, according to company reports. Jamaica-headquartered Digicel reported a US$198.491 million net loss for its year ended March 31, 2013. For the same period in 2012, Digicel made a net profit of US$47.233 million, and in 2011, US$43.158 million. The company's last net loss was in 2010 and amounted to US$131.679 million. Fitch Ratings, which did a Full Rating Report on Digicel, had to release the closely guarded numbers of privately-held Digicel to investors on January 8, 2014. Fitch also showed the company's results for the last twelve month (LTM) period ended June 30, 2013 and for that period too, a net loss of US$194.22 million was reported.
While Digicel has been reporting net losses, Digicel owner Denis O'Brien is set to pay himself another US$650 million in dividends according to reports by Bloomberg, the Sunday Times of London, the Irish Times and the Jamaica Gleaner. Simultaneously the company is borrowing money via bond issues "for general corporate purposes," according to a December 11, 2013 Digicel statement.
O'Brien is to take a US$650 million (€473 million) special dividend from Digicel, The Sunday Times reported on December 15, 2013. "The dividend is expected to be paid within the next six months. O’Brien last tapped Digicel in June 2012, when he received US$300 million. The dividend will bring his Digicel income to US$1.8 billion since 2008," the Times said.
Asked if O'Brien is cashing out of Digicel, Antonia Graham, head of group PR at Digicel told the Business Guardian on January 16, 2014: "To be clear, Denis O'Brien has no intention of selling the company. Further, we do not comment on reports about our financial affairs."
After the Business Guardian explained that the question was not if O'Brien is selling the company, but if he is taking his chips off the table (that is, his investment and profit) to leave the company operating on "house money," she reiterated, "Thank you, but again, we do not comment on financial matters."
The Digicel website has several press releases with comments on financial matters, including a June 30, 2013 release on the company's "financial performance for the year ended March 31, 2013" where the company "reported revenues of US$2.78 billion which represents an 8 per cent year-on-year increase in revenues." The release said: "Earnings before interest, tax, depreciation and amortization (EBITDA) was up 11 per cent year-on-year to US$1.2 billion for the full year, with the most recent quarter contributing US$318 million."
Digicel also said its subscribers increased by 1 per cent to 12.9 million across the Digicel Group’s 30 markets worldwide.
The company said "performance has been strong with revenue growth driven in particular by Haiti, Papua New Guinea, T&T and Suriname. As Digicel continues to roll out 4G networks based on HSPA+ technology and to expand the range of smartphones it offers, data and value-added services revenues stood at 23 per cent of service revenues – up from 20 per cent for the prior year quarter."
Commenting on the company’s performance, Digicel Group CEO Colm Delves, said: "We are very pleased with the continued growth we are seeing across our markets and with the customer response to the rollout of our 4G networks. We will continue to focus on growing our ICT/Business Solutions portfolio and on driving data usage across our customer base. I would like to take this opportunity to say thank you to our dedicated staff and loyal customers and to assure them of our continued commitment to best value, service and network and to growing our communities."
The release listed as "key achievements" in the period: "The launch of 4G services based on HSPA+ in the British Virgin Islands, Haiti, Jamaica and T&T – and LTE in Antigua & Barbuda; completion of the integration of the Voila business and network in Haiti; ICT/Business Solutions revenues increased by 94 per cent for the year and now represent 3 per cent of services revenues; issuance of a total of US$1.3 billion of Digicel Group Limited senior notes due 2021 at 6 per cent with the proceeds being used to refinance existing notes and for general corporate purposes."
BONDS TO COVER GENERAL CORPORATE PURPOSES
More recently, on December 11, 2013, Digicel via a statement announced "its intention to launch a private placement of US$500 million of 8.25 per cent senior notes due 2020. Digicel previously issued US$1.5 billion of its 8.25 per cent senior notes due 2020 on September 19, 2012. Digicel Group Limited is a limited liability exempted company organized under the laws of Bermuda and owned by Mr Denis O'Brien."
The statement said: "Digicel intends to use the net proceeds from this offering for general corporate purposes, which could include capital expenditures, investments, acquisitions or debt repayment. The notes have not been and will not be registered under the US Securities Act of 1933, as amended and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements."
In its latest rating on Digicel, Fitch gave the company an overall issuer default rating (IDR) of B (with AAA being the highest). For its its unsecured notes (bonds) already on issue, Fitch has a mix of B and B- ratings.
On Digicel's US$1.5 billion unsecured notes due 2020, Fitch has a B– rating. This is the same rating it has on a US$775 million unsecured notes issue due to mature in 2018. On Digicel's US$1.3 billion unsecured notes due 2021, Fitch has a B rating. On its US$800 million unsecured notes due 2017, Fitch has a B rating. On its US$250 million unsecured notes due 2020, Fitch has a B rating. According to the Fitch documents, Digicel, through its various subsidiaries and parent company, in total, has already issued US$4.625 billion in bonds.
On its balance sheet, Digicel's total debt has also been exceeding its total assets since 2010 at least. For the year ended March 31, 2013, total debt exceeded total assets by US$820 million. In 2012, total debt exceeded total assets by US$221.9 million; in 2011 by US$308.9 million, and in 2010 by US$604.7 million.
"Digicel Group Limited's (DGL) ratings are supported by its position as the leading provider of wireless services in most of its markets in the Caribbean and its track record of operational performance," Fitch said in its rating report. "The ratings are constrained by high leverage and exposure to low-rated countries, as about 40 per cent of its cash flow is generated in Jamaica and Haiti." Fitch described Digicel as a "high leverage and solid operations" company.
Fitch said Digicel's operations are diversified. "DGL has diversified its cash flow generation and asset base leading to lower business risk over the past several years. Fitch Ratings estimates that Papua New Guinea (PNG) has become the most meaningful market for EBITDA contribution, followed by Haiti and Jamaica. Digicel Pacific Limited (DPL), a subsidiary of DGL, has continued to grow and is now generating positive free cash flow (FCF)," Fitch said.
The ratings agency said that for Digicel "competition (is) intensifying."
Fitch said: "The introduction of lower mobile termination rates in Jamaica, French West Indies, and El Salvador, and pricing pressures in Haiti have affected revenues in local currency. Digicel has launched HSPA+ or 4G networks in 22 of its markets to underpin revenue from value-added services, which accounted for 24 per cent of service revenue in the quarter ended June 30, 2013."
Explaining its approach to rating entities within a corporate group structure, Fitch said the Issue Default Ratings (IDRs) of DGL, DL, and Digicel International Finance Ltd (DIFL) are the same. "The degree of linkage between the parent company and its subsidiaries is considered strong," Fitch said.
Addressing "recovery prospects," Fitch said that for issue ratings, it rates debt at DIFL one notch higher than DL, reflecting its above average recovery prospects. DL’s ratings reflect the increased burden the DGL subordinated notes place on the operating assets and the loss of financial flexibility, Fitch said.
The ratings of DGL incorporate their subordination to debt at DIFL and DL, and the subordinated notes’ below average recovery prospects in the event of default. Subordinated notes or "junior securities" represent a loan that ranks below other loans (or securities) with regard to claims on assets or earnings of the company.
Fitch said it "expects positive FCF in the coming years from existing operations and in the absence of special dividends. Funds from operations (FFO) should modestly grow, and capital expenditure (capex) is expected to decline from its peak in fiscal 2012. The capex-to-revenue ratio is expected to trend towards 10 per cent in the next few years."
Digicel does not face any significant (bond) maturity until fiscal 2018, Fitch said. Before this date, the largest maturity in a single year is US$352 million in fiscal 2015. Cash balances further support liquidity, but should trend down in the medium term. "DGL’s US$1.5 billion issuance due 2020 placed last year, and this year’s DL US$1.3 billion issuance due 2021 extended the debt maturity profile," Fitch said.
On rating sensitivities, Fitch said about Digicel's increased leverage and refinancing risk that "a negative rating action could be triggered if consolidated leverage at DGL approaches a multiple of 6 (6.0x). While refinancing risk was reduced with the recent issuances, the inability to refinance sizeable bullet maturities in advance in the medium to longer term could pressure credit quality. Positive factors for credit quality would be a sustained reduction in gross leverage at DGL to about 4.0x or below, and an increase in FCF generation."
Source: Fitch Ratings