Telstra confirms talks for Digicel Pacific bid

Digicel Denis OBrien.jpg

Australia's Telstra has confirmed that it has conducted talks with the Australian government to support its bid for Digicel's Pacific assets and operations.

Telstra's confirmation came a year after reports claimed that China was preparing to buy the largest mobile carrier in the Pacific and two days after the Sydney Morning Herald reported that Telstra and the government were now looking at the purchase.

In its market statement released to the ASX Monday local time, Telstra said that “discussions are incomplete and there is no certainty that a transaction will proceed".

Its statement continued: "Telstra was initially approached by the Australian Government to provide technical advice in relation to Digicel Pacific which is a commercially attractive asset and critical to telecommunications in the region.

“If Telstra were to proceed with a transaction it would be with financial and strategic risk management support from the Government. In addition to a significant Government funding and support package any investment would also have to be within certain financial parameters with Telstra’s equity investment being the minor portion of the overall transaction.”

If successful, Australian media said the deal could see the government pay A$1.5 billion with Digicel’s billionaire owner Denis O’Brien (pictured) retaining his seat on the board at Telstra's request. Digicel would also have to underwrite its future revenue forecasts for three years, the Sydney Morning Herald reported.

For its part, reports state Telstra could pay $200 million to $300 million for the assets.

The sale of the debt-laden business has been on the cards for some time with Australian media reporting in January that O'Brien is seeking $2.6 billion (US$2 billion).

Pacific Equity Partners held talks with Digicel before Christmas 2020 and in January Australian media reported that Digicel had received "unsolicited approaches" for its Pacific operations from Chinese operators.

However, in May 2020, the company filed for bankruptcy protection saying its debts – which then stood at US$7 billion – were unsustainable. It emerged from the process the following month, with debts reduced to $5.4 billion, following support from its lenders.

Former Digicel Pacific CEO Oliver Coughlan was appointed to run operations in the Caribbean and Central America in July 2020.

In total, Digicel is present in 32 markets across the Caribbean, Central American and the Asia Pacific. In the APAC region it operates in Papua New Guinea, Fiji, Nauru, Samoa, Tonga and Vanuatu.

Telstra's market statement said Digicel has a "strong market position" in the South Pacific and in calendar year 2020 was reported to have generated EBITDA of US$235 million.