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Telstra in talks to buy Digicel Pacific in Australian govt-backed bid

Stock MarketsJul 19, 2021 04:55AM ET
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© Reuters. FILE PHOTO: A man looks at his phone as he walks past a Telstra logo adorning a phone booth in the central business district (CBD) of Sydney in Australia, February 13, 2018. REUTERS/David Gray/File Photo

By Colin Packham and Paulina Duran

CANBERRA (Reuters) -Telstra Corp Ltd said on Monday it was in talks to buy the Pacific operations of telecommunications firm Digicel Group in partnership with the Australian government, a move widely viewed as a political block to China's influence in the region.

Telstra (OTC:TLSYY) said the government would finance the bulk of any bid for Jamaica-based Digicel, the largest mobile phone carrier in the Pacific with operations in Papua New Guinea, Fiji, Samoa, Vanuatu and Tahiti.

Digicel's future has been the focus of market and media speculation for several months. It last year denied an Australian newspaper report it was considering a sale of its Pacific business to state-owned China Mobile (NYSE:CHL) Ltd.

A sale of Digicel to a Chinese company would be a cause of concern for the Australian government amid strategic competition between U.S. allies and China in the Pacific region.

"The Australian government is trying to achieve a few things at once. Digicel is the primary player in the Pacific and Australia sees it as strategic asset that they can't allow to fall into the hands of China," said Jonathan Pryke, Director, Pacific Islands Program at the Lowy Institute, a Sydney-based think tank.

"They are keen to get Australian business back into the Pacific and they've come to the realisation that they are going to have to underwrite."

A Digicel spokesman declined to comment. A spokesperson for Australia's Minister for the Pacific, Zed Seselja, also declined to comment.

A spokesman for Australia's department of Foreign Affairs and Trade said it was inappropriate to comment on the "incomplete commercial discussions of a publicly listed company," but said that: "Partnering on infrastructure development is a key part of our Pacific Step-up."

He said the government supports businesses investing in infrastructure in the Pacific, "including communications infrastructure, which plays a key role in economies across the region".

The Chinese embassy in Canberra did not respond to requests for comment.

Telstra said it was initially approached by the Australian government "to provide technical advice in relation to Digicel Pacific, which is a commercially attractive asset and critical to telecommunications in the region."

"If Telstra were to proceed with a transaction it would be with financial and strategic risk management support from the government," the company said in a statement.

Telstra did not provide financial details, but Australian media reported a deal would be worth about A$2 billion ($1.5 billion) with the Australian government paying around A$1.5 billion.

Using details reported by the media, Goldman Sachs (NYSE:GS) estimated a deal would be valued at between A$1.9 billion to $2.5 billion, with equity split after debt seeing Telstra acquire up to 30%.

A deal would require Digicel to underwrite its future revenue forecasts for three years, the Sydney Morning Herald reported.

UNDERSEA CABLES

Australia has ramped up its presence in the Pacific through the creation of a A$2 billion ($1.5 billion) infrastructure financing facility and via its membership of the “Quad” group, together with the United States, India and Japan, to counter China’s expanding interests in the Indo-Pacific.

Digicel, founded by Irish billionaire Denis O’Brien, has a dominant market share in Papua New Guinea and uses a submarine cable from Sydney that was constructed with funding from the Australian government to expand data services there.

Australia stepped in to largely fund the 4,700-km (2,900-mile) Coral Sea cable in 2018 to head off initial agreements by Papua New Guinea and the Solomon Islands for Chinese telecoms company Huawei Technologies Co Ltd to lay the cable.

Australia, the United States and Japan are financing an undersea optic fibre cable for Palau, while sources told Reuters last month that Nauru is negotiating for the construction of an undersea communications cable that would connect to an Australian network. Nauru earlier rejected a Chinese proposal.

Washington has pressed governments around the world to squeeze Huawei and other Chinese companies out of supplying sensitive communications equipment, alleging the company could hand over data to the Chinese government for spying, a charge denied by Beijing and Chinese telcos.

($1 = 1.3510 Australian dollars)

Telstra in talks to buy Digicel Pacific in Australian govt-backed bid
 

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