Aleem Khan

In its sec­ond high­est bond sale, Dig­i­cel is re­turn­ing to mar­ket to bor­row US$865 mil­lion in se­nior notes, a state­ment from the com­pa­ny's Ja­maica head of­fice said yes­ter­day.In im­me­di­ate re­ac­tion, both Fitch Rat­ings and Moody's, two of the world's top three cred­it rat­ing agen­cies, rat­ed the bonds be­low non-in­vest­ment grade or "junk." Fitch jus­ti­fied the rat­ing by say­ing that the bond is­sue is to re­pur­chase and pay for a pre­vi­ous bond is­sue.

Dig­i­cel post­ed a net loss of US$198.4 mil­lion in its 2013 fis­cal year, down from a prof­itable po­si­tion of US$47.2 mil­lion in fis­cal year 2012.A state­ment from Dig­i­cel Group Ltd yes­ter­day said it planned to use the net pro­ceeds from the of­fer­ing to re­pur­chase any and all of its 10.50 per cent se­nior notes due 2018, pay any re­lat­ed fees and ex­pens­es, and re­deem the se­nior notes, if any, that re­main out­stand­ing af­ter the com­ple­tion of the ten­der of­fer.

The com­pa­ny said it would use any re­main­ing net pro­ceeds for gen­er­al cor­po­rate pur­pos­es, in­clud­ing cap­i­tal ex­pen­di­tures, in­vest­ments, ac­qui­si­tions or debt re­pay­ment.The brief state­ment added: "The notes have not been and will not be reg­is­tered un­der the US Se­cu­ri­ties Act of 1933, as amend­ed, and may not be of­fered or sold in the US, ab­sent reg­is­tra­tion or an ap­plic­a­ble ex­emp­tion from reg­is­tra­tion re­quire­ments."

Hold­ers of the pre­vi­ous bond have a dead­line to take up the of­fer from Dig­i­cel to sell back the bonds to the com­pa­ny."The ten­der of­fer is sched­uled to ex­pire at 11.59 pm, New York City time, on April 15, 2014, un­less ex­tend­ed or ear­li­er ter­mi­nat­ed by the com­pa­ny," Dig­i­cel said.

Dig­i­cel did not say why it is buy­ing back its own bonds via an­oth­er bond is­sue but had said ear­li­er that it will "use any re­main­ing net pro­ceeds for gen­er­al cor­po­rate pur­pos­es, which could in­clude cap­i­tal ex­pen­di­tures, in­vest­ments, ac­qui­si­tions or debt re­pay­ment".

The com­pa­ny has re­tained Cit­i­group Glob­al Mar­kets Inc to serve as the deal­er man­ag­er and so­lic­i­ta­tion agent for the ten­der of­fer and con­sent so­lic­i­ta­tion.

Dig­i­cel has a num­ber of bonds on the mar­ket. On Dig­i­cel's US$1.5 bil­lion un­se­cured notes due 2020, Fitch Rat­ings has a B� rat­ing, the same as on the US$775 mil­lion un­se­cured notes is­sue due to ma­ture in 2018. Fitch al­so has B rat­ing on Dig­i­cel's US$1.3 bil­lion un­se­cured notes due 2021, US$800 mil­lion un­se­cured notes due 2017 and US$250 mil­lion un­se­cured notes due 2020.Ac­cord­ing to the Fitch doc­u­ments, Dig­i­cel, through its var­i­ous sub­sidiaries and par­ent com­pa­ny, al­ready had is­sued US$4.625 bil­lion in bonds.

Fitch rat­ed Dig­i­cel's lat­est bond at B-, which is six notch­es be­low in­vest­ment grade. In a state­ment, the rat­ings agency said: "Pro­ceeds from the is­suance are ex­pect­ed to be used to ful­ly re­deem its US$775 mil­lion 10.5 per cent se­nior notes due 2018 and to pay for a ten­der pre­mi­um for such re­demp­tion, as well as the as­so­ci­at­ed ac­crued in­ter­est.

"The 'B-/RR5(EXP)' rat­ing for the pro­posed notes, a notch low­er than the com­pa­ny's Is­suer De­fault Rat­ing (IDR) of 'B', re­flects the pro­posed notes' struc­tur­al sub­or­di­na­tion to li­a­bil­i­ties of DGL's sub­sidiaries, none of which will guar­an­tee the notes, as well as its be­low-av­er­age re­cov­ery prospects in the event of de­fault. Se­cu­ri­ties rat­ed "RR5" have char­ac­ter­is­tics con­sis­tent with se­cu­ri­ties his­tor­i­cal­ly re­cov­er­ing 11 per cent to 30 per cent of the prin­ci­pal and re­lat­ed in­ter­est."

Fitch al­so said: "DGL has gen­er­at­ed sta­ble op­er­at­ing re­sults in the first nine months of fis­cal year 2014, end­ing on March 31, 2014, and Fitch ex­pects this trend to con­tin­ue over the medi­um term.The com­pa­ny's con­stant-cur­ren­cy-based rev­enue post­ed mod­est growth of three per cent with its earn­ings be­fore in­come tax, de­pre­ci­a­tion and amor­ti­sa­tion mar­gin im­prov­ing to 45 per cent from 44 per cent dur­ing the past year.

This was main­ly dri­ven by in­creas­ing da­ta rev­enue sup­port­ing av­er­age rev­enue per user, a de­cline in churn rates, as well as strong growth in Papua New Guinea and T&T."