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Digicel Group to Buy its Pacific Sister Company

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Pan Caribbean mobile network operator, Digicel Group (DGL) has announced that it is to buy Digicel Pacific Limited ("DPL"), a sister company that operates in 6 markets in the South Pacific for approximately USD825 million. The purchase is being funded by a new USD775 million debt placement.

DPL operates in Samoa, Tonga, Vanuatu, Papua New Guinea, Fiji and Nauru.

Fitch Ratings noted that the proposed transaction should increase the geographic revenue diversification of the company despite having a moderate increase in indebtedness relative to the cash flow.

On an annualized basis, for the last two quarters ending Dec. 30, 2009, DPL generated approximately USD83 million in EBITDA. DPL operations consist of 1.6 million users with a presence in six markets in the Pacific with Papua New Guinea (PNG) the most important in terms of revenues, cash flow and subscribers. PNG is expected to remain the main contributor to cash flow for DPL and, more importantly, to grow over the next few years. With the incorporation of DPL, consolidated revenues will be further diversified.

Digicel's diversified asset base and cash flow generation in conjunction with insurance coverage should temper pressure on credit quality associated with the Haiti earthquake of last January. The reconstruction efforts taking place in Haiti should fuel the economy in the short to medium term; however, the long-term effects to the economy for this natural disaster remains to be seen. Prior to this event and without including DPL, Haiti accounted for approximately 16% of consolidated revenues and 20% of EBITDA. Digicel has a property and network insurance policy which will allow it to replenish costs incurred to repair the assets and network after paying the customary deductibles. However, the difference in the timing between receiving the insurance proceeds from the claims and the use of cash to rebuild the infrastructure may have an effect on Digicel's short-term liquidity, which, however, should be immaterial, as USD20 million has been paid out of a US$40 million claim.

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Tags: digicel group  insurance  coverage  Samoa  Tonga  Vanuatu  Papua New Guinea