Businessman Denis O’Brien’s Digicel telecoms group has built its business around venturing into some of the world’s more difficult markets where others would not dare.
Some are absolutely tiny. Take the Dutch island of Bonaire off the coast of Venezuela (population: 22,000) and Montserrat, the British overseas territory elsewhere in the Caribbean, which has fewer than 5,000 inhabitants and where Digicel is the number two mobile operator.
Others, like Jamaica, Digicel’s first market, have a history of economic instability — even if that country has had a remarkable turnaround in the past decade, which has helped reduce its national debt from 1½ times the size of its economy to under 90 per cent.
None, however, has matched the challenges of Haiti, Digicel’s largest market by mobile subscribers and one of its traditional main earners.
Since Digicel’s 2006 launch in Haiti, the nation has lurched from one natural disaster to the next — including devastating earthquakes in 2010 and last year — and periodic civil disorder, a new wave of which was set by the assassination of its then-president Jovenel Moise 17 months ago.
Haiti is a country where annual gross domestic product per capita is under $1,700 (€1,777), according to the International Monetary Fund.
Digicel issued a profit warning on November 10th, saying it expected adjusted earnings … in its Haitian business to fall to $25m-$35m for the six months to the end of March
The United Nations said in October that a record 4.7 million people in Haiti, or 40 per cent of its population, are facing acute hunger, including 19,000 in catastrophic famine conditions for the first time, all in slums controlled by vicious gangs in a country on the brink.
Amid fears of the humanitarian crisis turning into a mass migration event, some top officials in US president Joe Biden’s administration are pushing for “a multinational armed force” to enter Haiti, the New York Times reported this week.
Haiti’s embattled acting premier — and former neurosurgeon — Ariel Henry pleaded for foreign military intervention in October. But the question of US troops being involved is off the cards, as Haiti “remains scarred by America’s long history of messy and sometimes brutal intervention in the country, including an occupation that lasted almost two decades” to 1934, said the New York Times.
Against this backdrop, Digicel issued a profit warning on November 10th, saying it expected adjusted earnings before interest, tax, depreciation and amortisation (ebitda) in its Haitian business to fall to $25 million-$35 million for the six months to the end of March, the second half of its financial year, from $74 million a year earlier, amid “public unrest, violence and substantial disruption to economic activity”.
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The Haitian gourde has plunged by more than 20 per cent since late September against the dollar, the currency in which Digicel reports earnings and denominates its bond debt.
O’Brien said in a statement that his company’s thoughts “are with the people of Haiti as they suffer extreme community and societal impacts”.
Another group were not far off the businessman’s mind when he issued the earnings alert: a group of Digicel bondholders owed $925 million (€883 million) and are scheduled to get their money back at the start of March next year.
The Irish Times reported this week that Digicel is in talks with a number of large holders of these bonds to try and get them to accept delayed repayment.
The negotiations come at a time when bonds issued by countries and companies in developing economies are having a tough enough year, with investors whipping more than $85 billion out of emerging market funds so far in 2022, according to JP Morgan estimates.
If O’Brien succeeds in securing extensions, it will be the third time in four years that he will have restructured Digicel’s debt. Rating agencies are likely to call it another “distressed debt exchange”, as it would in involve holders of the March 2023 bonds exchanging their certificates for long-dated notes.
In early 2019, the company pushed investors into accepting delayed repayments of two years on $3 billion of bonds. It moved more aggressively the following year to inflict $1.6 billion of debt write-offs on bondholders — equating to more than a fifth of its then $7 billion of borrowings.
Most creditors had little choice, as they stood to recover way less if Digicel succumbed to liquidation.
Long-standing investors in the March 2023 bonds have been a pesky lot, however. Digicel was first to blink two years ago when it faced off against holders of these notes during the wider 2020 debt restructuring.
The crisis in Haiti is focusing minds. The March 2023 bonds are changing hands in the market at a little over 40 cents on the dollar
Fewer than 8 per cent of these creditors, who ranked higher than many others, were prepared at the time to accept a small haircut on what they were owed and two-year maturity extension sought on the debt.
Now Digicel’s back.
While the company shaved $1.2 billion off its debt pile during the summer with initial proceeds from the sale of its Pacific unit, its net debt still stood at $4.2 billion at the end of September. That equates to a chunky 5.9 times its ebitda over the preceding 12 months.
The crisis in Haiti is focusing minds. The March 2023 bonds are changing hands in the market at a little over 40 cents on the dollar.
The pricing suggests investors are concerned about the company’s ability to repay the debt in full. Will O’Brien be happy with just a term extension on the bonds?
