Corporate Finance : Digicel Bonds Set Caribbean Record


Jamaica-based Digicel placed $1.4 billion of high-yield bonds with institutional investors in an innovative financing to take the fastest-growing mobile phone operator in the Caribbean private.

Irish billionaire Denis OBrien, founder and chairman of Digicel, took full ownership of the telecommunications company through a newly formed Bermuda-incorporated company called Digicel Group. He previously owned 78% of Digicel. The proceeds from the bond sale along with funds provided by OBrien were used to acquire the remaining shares of Digicel.

Led by investment banks Citi and JPMorgan Chase, the $1.4 billion bond financing also involved Lehman Brothers and Credit Suisse, as well as Davy Stockbrokers and Goodbody Stockbrokers in Ireland.

This transaction is the largest bond offering ever undertaken in the Caribbean, and we believe the largest high-yield issue from the Latin and Caribbean region, says Ken McGrath, managing director at Citi. It is also the first innovative toggle note ever done in the emerging markets.

The offering comprised $1 billion of 8.875% senior notes due 2015 and another $400 million of pay-in-kind, or PIK, 9.125% senior toggle notes due 2015. When cash is short, the debtor can postpone cash interest payments on the toggle notes, but the interest rate is increased.

OBrien formed Digicel in 2001, one year after he sold Esat, his bidding vehicle for the second Irish mobile phone license, to British Telecom for $2.5 billion. Digicel has expanded its presence to 22 Caribbean markets in a relatively short period of time and has more than 4 million customers. Jamaica is the country with the highest concentration of users for Digicel, with 1.6 million. The company is the lead sponsor of the West Indies Cricket Team.

In March Digicel pledged to rebuild 20 primary schools across Haiti that had been damaged by past hurricanes and flooding. The company began offering mobile phone service in the impoverished nation last year, and it has spent $260 million in the country so far, the largest single private investment in Haitis history.

With the recent $1.4 billion bond transaction, consolidated debt at Digicel Group should total approximately $2.5 billion, according to an analysis by Fitch Ratings. This excludes project finance for startup activities in Haiti and Trinidad and Tobago.

The company has rapidly gained leading market shares in most of the markets served by successfully executing a strategy of launching operations with extensive initial geographic coverage, good customer service, effective branding and through strong product offerings, Fitch says. High wireless penetration rates are the result of low fixed-line penetration in these markets and long waiting periods to get fixed-line connections, as well as good network coverage by wireless service providers, it says.

Gordon Platt