LONDON, England, Monday December 19, 2016 – A leading voice on global credit markets has raised a red flag about the operations of telecommunications provider Digicel.
Independent research provider CreditSights has released a gloomy report about the company, which operates in 32 Caribbean countries, warning that turbulent times were ahead.
In the presentation released in London, entitled ‘Digicel: Should I stay or go’, CreditSights debt analyst Michael Chakardijan said the company was burdened with high debt estimated at more than US$6 billion and this was unsustainable.
“We 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 in a report published in the Irish Examiner.
Digicel, which is owned by Irish businessman Denis O’Brien, has rejected the report, saying: “Digicel’s outlook remains positive with robust plans to deliver by monetizing our network investment and through realistic cost- management initiatives.”
The company has, however, embarked on a major cost-cutting plan and hired financial consultants McKinsey and Goetzpartners to help cut its massive debt burden.
The plan, dubbed Project Swan, includes using more technology and the streamlining of back office functions to maximize efficiencies.
At the same time, Digicel said it would significantly grow its earnings and is pinning its hope on a significant drop in expenditure when its cable and fibre programme begins to bear fruit.
Last month, the company assured bond market investors that these initiatives would increase it profits by 24 percentage points by March 2018, leading to a return to growth.
CreditSights is however not convinced. Chakardijan described the 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.
The expert explained that Digicel’s debt woes were compounded by declining interest in its services, noting that revenues from phone calls have dropped as users opt for calling services provided by Viber, Whatsapp and Skype.
Chakardijan said the company also had to be concerned about currency fluctuations in some of its overseas markets.
In October last year, O’Brien pulled an initial public offering of Digicel shares, in which the company was seeking to raise as much as US$2 billion to help lower its debt mountain, expand operations and list on the New York Stock Exchange.