What the Caribbean can expect should Digicel have a successful IPO

A brief examination of Digicel, its operations in the Caribbean and its plans for the region should it raise the hoped USD 200 million from its IPO in the US
Over the past several weeks, global mobile/cellular carrier, Digicel, has been actively preparing for an Initial Public Offer (IPO) of shares on the New York Stock Exchange (NYSE) in the United States of America. Since its inception, well over 15 years ago, Digicel, which has established a presence in 31 countries across Latin America, the Caribbean and the South Pacific, has been a privately own firm. Accordingly, noting the considerable effort and adjustments needed to become a publicly listed company on the NYSE, there does appear to be a sense of urgency for the firm to raise funds, but also it will be a monumental step in its own evolution.

One of the main reasons why firms sell share, such as through an IPO, is to raise capital. However, it also means that they must become more accountable to their “new owners” (i.e. their new shareholders), and the pressure to be profitable and to pay dividends regularly is likely to be even more pronounced that it had been before the IPO.

It is with that in mind, and noting that Digicel is a major player in mobile/cellular markets across the Caribbean, it might be fitting for us to understand what plans, if any, Digicel might have for us in the region.

From a phenomenal start to a behemoth

From the start, and those who were in the know back then, may have predicted that Digicel was destined to be a force in Caribbean telecoms landscape.  From its launch in Jamaica in 2001, it is now has a presence in 25 markets in Latin America and the Caribbean, and in six countries in the South Pacific. Further, within that 14-year period, its subscriber base has grown by a compound annual growth rate (CAGR) of 32.3%, to 13.6 million worldwide, with 10.8 million in the Caribbean alone (Source:  Digicel). Additionally, in 16 of the 25 Caribbean and Latin America countries in which it has a presence, Digicel is the market leader, as reflected in Figure 1.

Figure1: Digicel estimated market share and market position (in brackets) in select Caribbean and Latin America countries as at 31 March 2015 (Source: Digicel)

However, as phenomenal as those achievements have been, they have come at a significant price. At the end of the 2014—2015 financial year, although Digicel generated total revenue of USD 2.8 billion, it had a net loss of USD 157.6 million. The aggressive expansion of its infrastructure, along with recent acquisitions of existing firms (which in just 2014 included SAT Telecommunications Limited in Dominica, the Bermuda Telecommunications Company, Telstar Cable Limited in Jamaica, International Media Content Ltd, TCI Broadcasting Limited in the Turks and Caicos Islands, and Global Caribbean Fibre SAS) has resulted in the Digicel carrying extensive debt – to the tune of USD 6.5 billion – which it needs to service. The funds raised from the IPO will help the firm better manage its debt, whilst still allowing it to continue to position itself in the markets in which it operates.

Plans for the region

Into the future, and hopefully having the raised in the region of USD 200 million through the IPO, Digicel is cognisant of the need reposition and evolve in the region, more so when the recent merger of LIME and Flow is considered. It recognised that it can no longer be just a mobile/cellular services provider, but should be seen to more fully embrace ICT – data services, subscriber TV and broadband Internet, along with being able to offer business solutions. Hence a key objective is to become “the leading communications and entertainment platform in each of the markets it serves” (Source: Digicel).

To that end, and among other things, Digicel plans to undertake the following:

  • improving generally, and expanding its fixed-line infrastructure, especially fibre optic and cable TV, to be able to offer services such as fibre-to-the-home (FTTH) and fibre-to-the-building (FTTB)
  • increase it business solutions offerings
  • add new services, in areas such as sports, content, apps, advertising and mobile financial services, to the Digicel platform and ecosystem, and
  • building on the work being done by the Digicel Foundation (Source: Digicel).

In summary, the extent to which Digicel can implement successfully implement those activities will be dependent on a number of factors, many of which it does not fully control. For example, they range from how much money it raises through the IPO, to the stability of the countries in which it has a presence, and whether it can secure the requisite licences and authorisations, as might be needed, for the new services it wishes to provide.

However, to date, it does appear that Digicel intends to be in the region into the foreseeable future, and be a more attractive option that the other players in the market.