The Digicel Group is refuting a report from a major US credit research firm that claims the company is in serious financial trouble, and encouraging bondholders to sell some of their holdings.
The report was presented by financial analyst Michael Chakardijian of CreditSights, at a conference in London last week.
Digicel is insisting its outlook remains positive. The irrefutable fact is this – Digicel is USD$6.5-billion in debt. That’s over six times the company’s earnings.
If Digicel were a country, its financial position would be more than three times worse off than the world’s most indebted countries, including Jamaica and Greece.
Chakardijian says these debts are unsustainably high.
The debt is the equivalent of over JMD$833-billion – that’s $250-billion more than the country’s national budget.
Despite the numbers, Digicel is sticking to its script.
Head of Group Public Relations, Antonia Graham, read from a prepared statement when responding to queries from Nationwide News today.
One part of the transformation is a cost-cutting plan dubbed “Project Swan”.
In November, Digicel executives pitched a plan to investors to cut its debt ratio by one-third by March 2019 as it sees profits finally rebounding in its next financial year.
There’s no indication yet, what areas Digicel will be targeting for cost-cutting and how this will affect operations in Jamaica.
But according to Charkardijian, the company has very little wiggle room for poor performance because of its high debt.
So how did a company with 14-million subscribers in 32 markets worldwide, end up in its third consecutive year of earnings decline?
According to Chakardijian, there are a few factors at play.
Digicel has been facing falling revenues from mobile calls, and has been forced to pump cash into its fibre network to provide better data service.
To make that investment, it’s had to borrow big.
Those debts are in US dollars, but the company is trying to pay them off in weakening currencies from Haiti, Papua New Guinea, and Jamaica.
According to the Irish Times, Digicel maintains that the heaviest portion of its debts doesn’t start maturing until 2020.
However, the company still needs to find nearly USD$300-million to repay in the next three months.
CreditSights says Digicel’s liquidity position is weakening, bringing increasing concerns about its near-term financing needs.