Earlier this year, it was revealed that Denis O’Brien—the Irish businessman who founded international telecom group Digicel in 2001—could lose up to 90% of the company to U.S.-based investment firms.
These firms are poised to seize control of the business in exchange for writing off up to $1.8 billion of Digicel’s debt.
The revelation that O’Brien could lose his empire follows a tumultuous period for Digicel. Today we take a look at the rise and fall of a Caribbean communications kingpin.
The Origin Story
Back in 1991, O'Brien was part of the Esat Telecom consortium, which was formed to compete with the Irish incumbent, state-owned telco Telecom Eireann.
In partnership with Telenor—Norway's state-owned telecom operator—O’Brien’s new company formed Esat Digifone, which successfully bid for Ireland’s second GSM mobile license. At that time, Ireland was one of the last EU states to liberalize its mobile phone market and the newcomer competed aggressively, making strong subscriber gains.
On November 7, 1997, Esat Telecom Group plc held an initial public offering (IPO) and was listed on the Irish Stock Exchange, the London Stock Exchange, and NASDAQ.
In 2000, Telenor made a bid for control of the company, but O’Brien opted to sell the unit to Britain’s BT instead, reportedly making EUR300 million from the EUR2.4 billion sale.
Using the cash from his sale of Esat Telecom, O'Brien won a mobile license in Jamaica and went on to launch the country’s first GSM network in April 2001, under the Digicel brand name. He proceeded to reuse his Esat Digifone playbook in the Caribbean, aggressively stealing market share from Cable & Wireless Communications (CWC), the incumbent mobile operator in most Caribbean mobile markets.
O’Brien’s foray into the Jamaican mobile market turned out to be the first of many such moves in a two-decade push for regional supremacy in the Caribbean.
O’Brien’s foray into the Jamaican mobile market turned out to be the first of many such moves in a two-decade push for regional supremacy in the Caribbean.
Caribbean Conquests and Latin American Launches
As per its own data, Digicel toppled CWC to become the Jamaican market leader within just 15 months of its commercial launch.
Armed with a successful blueprint, a wave of expansion followed in the 2000s, with Digicel growing its presence via a combination of greenfield launches and takeover deals that encompassed the Caribbean and Central and South America.
As such, the group now has a presence in the following locations: Jamaica, Saint Lucia, Saint Vincent and the Grenadines, Aruba, Grenada, Barbados, Cayman Islands, Curaçao, Dominica, Anguilla, Bermuda, Saint Kitts and Nevis, Antigua and Barbuda, Turks and Caicos, Guadeloupe, Martinique, French Guiana, Trinidad and Tobago, Haiti, Bonaire, British Virgin Islands, Montserrat, El Salvador, Guyana, and Suriname.
Making a Splash in the Pacific
With the group’s Caribbean footprint well-established, O’Brien set about finding a new region where he could apply his tried-and-trusted formula. He believed that the Pacific had the potential to fit the bill.
Digicel’s first operating market in the region was Samoa. The group was granted a cellular license in April 2006 and commenced operations following its acquisition of Telecom Samoa Cellular in September 2006, relaunching it as Digicel Samoa in November 2006.
Digicel was subsequently issued a license in Papua New Guinea in March 2007, going on to launch in July that year. Next, it acquired the assets of Shoreline Communications (Tonfon) in Tonga in December 2007, relaunched under the Digicel brand in May 2008. Digicel Vanuatu went live in June 2008 and Digicel Fiji launched in October 2008. Finally, the company activated its network in Nauru in September 2009.
NYSE State of Mind
With business seemingly booming and a presence in more than 30 markets, September 2015 saw Digicel unveil plans for an IPO on the New York Stock Exchange (NYSE).
The group intended to offer 124.2 million “Class A” shares and 193.3 million “Class B” shares at between $13 and $16 per share. Digicel anticipated proceeds of around $1.7 billion—using a mid-point of $14.5 per share—with a plan to use around $1.3 billion to repay its existing debts. The remainder would be used to finance CAPEX and acquisitions.
Within a matter of weeks, however, Digicel cancelled the planned IPO, citing market conditions. O’Brien noted: “Digicel has decided not to proceed with its planned IPO at this time. Despite significant support for the IPO from a high-quality group of investors during the marketing period, current conditions, particularly in emerging markets, have impacted transaction momentum over recent days. Given our growth outlook, an IPO for Digicel was optional and predicated on achieving fair value for the company. Recent volatility in equity markets has seen a number of IPOs listing at a discount to their signalled price, and this was a less attractive route for us.”
Bondholders, Bankruptcy, and “Business as Usual”
Stormy waters lay ahead, however. Digicel weathered several years of rising financial costs and declining revenues in its key markets, resulting in significant levels of debt.
Indeed, in May 2020, Digicel filed for Chapter 15 recognition in a federal bankruptcy court in the U.S., following a similar filing before the Bermudan courts a matter of days prior. The filings referred to a non-operating intermediate holding company, Digicel Group One Limited (DGL1).
The company’s liquidation was part of a deal with bondholders to reduce the group’s debt pile—by around $1.7 billion—by having five categories of bondholders exchange their securities for notes of a lesser value.
Underlining the scale of its problems, a regulatory filing confirmed that Digicel’s debt burden at end-September 2019 was an eye-watering $7.4 billion.
Underlining the scale of its problems, a regulatory filing confirmed that Digicel’s debt burden at end-September 2019 was an eye-watering $7.4 billion, compared to annual turnover of $2.3 billion for the twelve months to March 31, 2019.
Digicel stressed that the move would have no impact on its day-to-day operations, stating in a press release it was “business as usual.”
Pacific Payday
Under pressure to generate funds, Digicel began exploring the potential sale of its Pacific-operating unit in December 2020, after receiving unsolicited approaches by a number of parties regarding the assets.
While China Mobile was initially perceived as the front-runner for any such deal, the government of Australia harbored national security concerns over any Chinese involvement. The Australian government was willing to offer financial assistance in the form of subsidized loans or loan guarantees to alternative bidders in order to stop a Chinese state-owned firm from gaining access to critical infrastructure in the region.
In July 2021, Australian telco Telstra confirmed that it was holding talks with Digicel regarding a potential deal, adding that the Australian government offered technical advice and “financial and strategic risk management support.”
In the event, Digicel and Telstra finalized a deal in October 2021, under which Telstra would acquire 100% of Digicel Pacific for a total purchase price of AUD2.1 billion ($1.6 billion). Of that total, Telstra would contribute AUD270 million in equity, while the Canberra administration would provide a financing package worth around AUD1.85 billion through Export Finance Australia (EFA). Digicel and Telstra went on to complete the transaction in July 2022.
Digicel Debt Deal Dodges Default Deadline
On February 28, 2023—one day before the company was due to pay $925 million in outstanding bonds—Digicel announced that it reached an in-principle agreement with a committee of creditors for a debt-for-equity swap that would reduce the group’s consolidated debt by around $1.8 billion.
Under the terms of the agreement, O’Brien—who currently owns 99.9% of Digicel—could see his stake cut to around 10%.
Under the terms of the agreement, O’Brien—who currently owns 99.9% of Digicel—could see his stake cut to around 10%.
However, if the restructuring deal collapses, or if creditors push for a more punitive outcome, O’Brien’s stake could potentially dwindle even further.
Bloomberg subsequently named Golden Tree Asset Management, PGIM Fixed Income, and Contrarian Capital Management as the firms set to take control of Digicel when O’Brien cedes his stake.
Despite reports that the proposed debt restructuring plan was struggling to win over a number of key creditors, it is believed that the proposal has now secured in-principle agreements with 75% of the affected bondholders.
When questioned about Denis O’Brien’s future role at the company, a Digicel spokesperson told the media: “Mr O'Brien would remain actively involved in the business as a director and retain an equity interest in the recapitalized business.”
There are few certainties in telecoms, however, and it seems unlikely that the Irishman will be the one calling the shots once the dust has settled.
Tom Leins
Tom Leins is a Senior Research Analyst for TeleGeography’s GlobalComms Database. Based out of the company’s UK office, he also contributes to the company’s daily CommsUpdate newsletter, which includes his popular weekly MVNO Monday round-up. MVNO industry aside, Tom has developed a strong specialization in the U.S., Latin America, and the Caribbean, tracking mergers and acquisitions, spectrum auctions, regulatory developments, market opportunities, and growth trends.