Behind O’Brien’s Digicel deal
TAOISEACH Leo Varadkar sought to dispel any myths during the week around racking up billions of euro in deficits and borrowing to get through the crisis.
Ireland won’t be able to borrow money cheaply forever and there is no such thing as free money, he said. He even suggested that it would be a mistake to think Ireland could borrow cheaply in six months’ time and it would be naive to think that conditions would not change.
It was an attempt at a very sobering message about having to pay the interest on our new public debt into the future. But credibility is an issue here.
His comments come just a month after Fine Gael published a joint set of proposals for new government formation which pledged to reignite the economy, provide universal healthcare, housing for all, a better quality life for all, electrify the public transport fleet and plant 440 million trees.
Here we are a few weeks later, and with a deficit of around €23bn to €30bn on the cards, the message has changed. We can’t be sure we will be able to borrow money at cheap rates six months down the road.
Varadkar is of course trying to inject some reality into a situation where some believe we can borrow all these billions at unbelievably low interest rates, and not have to pay any of it back for decades if at all.
Of course there is a risk of inflation. And yes, we won’t be able to keep borrowing money at these incredibly low rates forever — and possibly not even for much longer.
But it isn’t clear how this tone from Varadkar is in keeping with the utterly unrealistic, contradictory and unaffordable promises being thrown around the government formation talks.
Having pledged to reduce the deficit as the economy grows, how do we manage to do that without raising taxes and/or reducing spending, at a time when the main political parties appear to be promising so much on everything from climate change measures to the health service?
Varadkar said increased money supply arising from the crisis would lead to inflation and devalue spending power. Meanwhile the cost of providing public services and infrastructure will rise and it might cost more to do less.
This makes the government formation policies currently being formulated seem even more fantastical. There were real ominous signs in the Taoiseach’s comments. His mention of “retraining” points to how many of the jobs lost in the last few months will not come back at all, forcing people to find other new employment.
Either way you can’t be realistic one day, and utterly unrealistic the next.
O’Brien gets nearly all he wanted from bondholders in Digicel deal
“A WIN is a win,” they say in football. And it was also true of Denis O’Brien’s debt restructuring plan at Digicel. Having embarked on the extraordinarily ambitious plan of convincing bondholders to reduce what they are owed by $1.6bn (€1.45bn), O’Brien has more or less pulled it off.
The group’s debt will fall and its annual interest bill will be reduced substantially. Despite the pandemic posing an even bigger commercial threat to any heavily indebted large business, O’Brien was able to use it to his advantage by putting the proposals to bondholders at a time when they are already spooked by the market turmoil and uncertainty caused by the virus.
But the tech billionaire didn’t have it all his own way. One group of bondholders held out and spurned the “opportunity” to push out the repayment of $925m they are owed from 2023 to 2025.
On Friday the company abandoned plans to get holders of these bonds to take some pain after only 7.2pc of these creditors agreed to back the plan. As more secured holders of Digicel debt, they obviously felt they held a stronger hand than creditors further down the debt pecking order.
It prevented him from having a clean sweep in his proposals.
Another downside for the businessman was the publication of details of the group’s finances which were disclosed in a statutory filing with the SEC. It didn’t make for pretty reading.
The group made a combined net loss of $700m in the three-and-a-half years to last September. It had a $4.2bn deficit on its balance sheet before it turned to bondholders to ask them to write off a sizeable chunk of what they are owed.
Publication of the financial details shouldn’t make a significant difference to Digicel’s immediate stakeholders, like bankers or bondholders, because they would have been aware of this financial position anyway.
But it does open up to a wider audience the scale of the challenges faced by the group and the importance for O’Brien of getting his deal done.
Now he has the deal done, Digicel has been given some breathing space and time to turn those figures around. Even with $1.6bn less in debt, it won’t be easy.
Ronan keeps family connection with offshore wind-farm project
IT finally looks like some large wind turbines will be heading for a part of the Irish Sea near you. The Government has fast-tracked the development of seven off-shore windfarm projects as part of its late push to significantly increase renewable energy generation over the next decade.
Among the projects given the fast-track status is the Codling development off the Wicklow coast. This one was a joint venture between Norwegian billionaire Fred Olsen and a company called Hazel Shore Ltd, owned by the former Treasury Holdings and members of the developer Johnny Ronan’s wider family.
The 50pc of the project owned by Hazel Shore was sold to French utility company EDF in February, for an undisclosed sum.
Companies Office filings show the first thing the French did was subscribe for a single newly-allotted ‘B’ share for €13.9m for cash, which would have bolstered the balance sheet. Under the terms of the deal Johnny Ronan, Richard Barrett and Johnny’s brother Conor, resigned from the board.
However, Conor Ronan will retain an interest in the venture. Conor Ronan Offshore Wind Ltd will hold newly created ‘E’ shares which will entitle it to up to 5pc of any dividends paid and up to 5pc of the value of the available assets for distribution in the event of a future liquidation.
This will retain the Ronan family connection with the project, although the ‘E’ shares do not entitle Conor Ronan to attend or vote at company meetings.
If given planning approval, which seems more likely under new marine planning laws to be passed, this will be a huge project involving hundreds of wind turbines and a €2bn investment.
Hazel Shore was reported to have sold its 50pc share in Codling for around €100m, but no price was disclosed.