The fact that Digicel founder Denis O’Brien is emerging with even a 10 per cent stake from the slow-moving debt train wreck that his telecoms group had become in recent years is a something in itself.
Bondholders are preparing to write down $1.7 billion (€1.57 billion) of Digicel’s debt by the end of the year, under a debt restructuring in the works for months that will see a group of bond investors seize 90 per cent of the group. It follows on from Digicel receiving a $1.6 billion debt forgiveness deal three years ago.
Even after all that, it will barely have an equity value of $375 million following the latest overhaul, based on a valuation model used by debt ratings agency Fitch and the enterprise values at which listed peers, Liberty Latin America and America Movil, are currently trading.
In most similar circumstances in the corporate world, O’Brien would be squeezed out at this stage. But the widely-held view among Digicel bondholders has been that he needs to remain with the business, given his operational insights and relationships with regulators and politicians in emerging and, often, frontier markets.
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Documents relating to the debt restructuring, filed by Digicel units last week with the US Securities and Exchange Commission, say O’Brien will remain on the main board as a non-executive director for at least three years – and that a so-called services agreement will see him “to perform services for the companies in a manner consistent” with his current role as executive chairman.
O’Brien is also being offered an unspecified “portion” of proceeds from the group’s $1.85 billion deal last year to sell its Pacific unit, as well as warrants that will allow him to purchase within six years the equivalent of a further 10 per cent of shares outstanding when the restructuring is completed. (The stake could be diluted, of course, by any equity raises in the meantime.)
However, the price at which the warrants can be converted into shares will be based off an equity value target of $1.1 billion for Digicel – a multiple of what it will be worth by the end of the current restructuring. O’Brien has his work cut out for the warrants to be in the money before the company is inevitably put up for sale over the medium term by the creditors-turned-shareholders.
