Australian taxpayers could help buy the Pacific arm of telecoms giant Digicel to prevent China from catching it first
What business does the Australian taxpayer have by purchasing telecommunications service from an Irish billionaire in the Pacific?
A lot, it turns out. Not that anyone really wants to talk about it – at least until the deal is signed.
But it’s about China and making sure Beijing doesn’t put its gloves on a key strategic asset.
Irish billionaire Denis O’Brien is the owner and founder of Digicel, which, through its subsidiary Digicel Pacific, controls the region’s major telecommunications companies.
Digicel Pacific has 91 percent of the telephony and broadband market in Papua New Guinea, 65 percent in Vanuatu, 69 percent in Samoa, 58 percent in Tonga, 32 percent in Fiji and 100 percent in Nauru.
The company also makes good profits, around $ 300 million per year.
This isn’t the kind of market dominance or profits to be sneezed at, unless of course the parent company is running into unmanageable debt.
Digicel (the parent company) filed for bankruptcy in Bermuda 13 months ago and offered to refinance its $ 7.4 billion debt, which it has done to the satisfaction of bondholders.
It is not known if O’Brien then began to consider offloading parts of his business, but an investigation was directed to him from Beijing into his interests in the Pacific.
China is still looking for a tactical buy.
And that’s where the Australian taxpayer comes in.
This is because China Mobile, the largest telecommunications operator in China, has expressed interest in purchasing Digicel Pacific, which would be a superb strategic takeover for Beijing.
In recent days, Chinese telecommunications giant Huawei struck a $ 6 billion deal to build the majority of China Mobile’s 5G base stations.
And few would need to recall that Huawei was banned by the federal government from participating in the 5G rollout in Australia in 2018, a move that is widely believed to have triggered tariff retaliation.
Keeping Digicel Pacific out of the hands of a Chinese company is seen as almost as strategically important as preventing Huawei from taking over Australia’s 5G network.
This is especially since Digicel Pacific is using a 4,700 km submarine cable from Sydney largely funded by the Australian government in 2018 to prevent PNG and Solomon Islands from contracting Huawei for the project.
Likewise, Australia, the United States and Japan will finance an optical cable for Palau. Nauru wants one too.
And he’s determined to make the deal a no-brainer for the Australian telephone company.
An agreement in the national interest
The way it would work is as follows:
Telstra would have to pay between 400 and 500 million dollars to take a stake. Another approximately $ 1.5 billion would be borrowed from the federal government at “journeyman rates”, say 2.5 to 3 percent, which is higher than the rate at which the government can borrow it, but which remains extremely competitive.
If the interest rate is 3%, Telstra would pay $ 45 million per year on its $ 1.5 billion Commonwealth loan, while receiving about $ 300 million per year in profits from Digicel Pacific’s operations in the region.
After the interest payments, that’s a good quarter of a billion dollars in profit from a strategically sensitive purchase.
While serving the national interest.
What’s not to like?
The government is collectively crossing its fingers and toes that Telstra sees it this way.