Australia-China turns music on to Denis O’Brien’s ears

The downward spiral of relations between China and Australia over the past year has played into the hands of businessman Denis O’Brien as he seeks to further reduce the debt burden of his telecommunications group Digicel .

After effectively forcing bondholders early last year to write off $ 1.6 billion (€ 1.35 billion) of what was owed to them, O’Brien more recently sought to sell the least indebted part of the group: its activities in the Pacific, covering Papua New Guinea (PNG) to Fiji, Samoa, Vanuatu Tonga and Nauru.

Only 150 km separate the continents of Australia and PNG. It’s only 4 km if you consider their islands in the Torres Strait. So last year’s rumors of China’s interest in the Digicel unit were enough to spur Australians to act and inject some competitive tension into the process – underpinning the $ 2 billion price tag. dollars advertised for the unit.

Relations between the two countries collapsed when Australia in 2018 banned Shenzhen-based Huawei from participating in its 5G broadband network due to cybersecurity concerns, before escalating into a full-blown trade dispute – affecting finally barley, beef, coal and even Australian wine. exports – after Canberra last May requested an independent investigation into the initial Covid-19 outbreak.

It emerged in July that Melbourne-based telecommunications group Telstra was in talks to buy Digicel Pacific, with financial backing from government Scott Morrison. And it looks like things are going well, with the Australian Financial Review reporting this week that Telstra chief executive Andy Penn paid a three-day visit to PNG last month to meet with Prime Minister James Marape and associate. O’Brien’s longtime figure, Paul Connolly. , among other things, and that an agreement is likely before the end of the year.

A deal will reduce Digicel’s net debt position by approximately $ 5.4 billion currently and increase its equity value. It will also prompt O’Brien to take a close look at around $ 200 million in convertible bonds issued last year to certain types of bondholders who participated in the debt restructuring.

After all, holders of about $ 190 million of what remains of those bonds – after Digicel bought back about $ 10 million at the end of last year – will be entitled to a stake of about 44%. in the group if they are not subscribed by June 2023..