Tuesday 17 October 2017

Digicel bonds up on plan to slash costs

Businessman Denis O'Brien
Businessman Denis O'Brien
Donal O'Donovan

Donal O'Donovan

Digicel bonds traded up yesterday as investors reacted to a plan to dramatically cut costs at the telecoms group.

Financial results due soon for the third financial quarter will be closely watched by investors, especially for signs that a €1.6bn investment programme over the last three years is starting to pay off in greater customer revenues from higher value added areas like fibre-to-the home, data and cable, as traditional voice calls decline.

On Wednesday the company, owned by Irish billionaire Denis O'Brien, said it planned to let go as many as 1,500 workers - 25pc of staff - over 18 months as part of a radical cost-cutting programme.

The business, which operates across 31 different markets spread across the Caribbean and the Pacific, announced the plan in response to a decline in earnings linked to the fallout from the strengthening of the dollar over the past year and declining income from traditional voice calls.

Currency swings hit Digicel because it borrows in dollars but its income is in a mix of local currencies in the markets where it operates, many of which have weakened compared to the greenback.

Yesterday the yield, or return investors demand, on Digicel's lower ranked 'CCC' April 2022 bond fell to 12.1pc from 12.8pc a day earlier. It is well down from 15pc in November. Higher ranked 'B' bonds also traded up.

Digicel has no major bond debt maturing until 2020. In the meantime, investors are likely to focus on improvements to the bottom line, in particular on a constant currency basis, in order or track the direction of travel within the business.

The restructuring announced on Wednesday includes creating four regional hubs to provide centralised functions for groups in the 31 markets Digicel serves. That's a shift from the current structure where all of the national telecoms providers operate separately.

The reduction in staff will take place over 18 months.

As part of the cost-cutting programme and to boost customers' data access, Digicel has signed Chinese equipment maker ZTE for an ongoing data network upgrade programme - the largest network upgrade by Digicel to date.

The deal will see ZTE signed up as a service provider for Digicel. Norway's state investment fund said in January that it had sold its stake in ZTE, because of corruption allegations made against the Chinese company. ZTE joined the likes of Airbus, Boeing and Wal-Mart on the Norwegian fund's investment blacklist.

Digicel pulled a planned stock market flotation in 2015 that could have valued the business at up to $10bn.

Irish Independent

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