Telstra completes govt-backed acquisition of Digicel Pacific

Back in October last year, Telstra announced that it had agreed to purchase Digicel’s Pacific operations for $1.6 billion.

 

The deal was heavily subsidised by the Australian government, who agreed to provide around $1.3 billion to facilitate the move, with analysts suggesting this was largely to stop the Pacific region’s critical communications infrastructure falling under Chinese control.

 

The acquisition covered all of Digicel Pacific’s businesses in the region, which includes network operations in Papua New Guinea (PNG), Fiji, Samoa, Nauru, Vanuatu, and Tonga. Combined, these operations account for roughly 2.8 million subscribers. 

 

But while the deal initially appeared to progress smoothly, it met its first significant obstacle in April this year, with the government of PNG announcing a new tax that would threaten to charge the local Digicel unit a one-time fee of around $100 million, with a $14 million penalty for delayed payment.

 

The Additional Company Tax had been devised as part of reforms to the Income Tax Act and was aimed at specifically targeting telecoms and banking companies that controlled over 40% of their respective markets.

 

Naturally, Digicel protested the law’s introduction, but onlookers feared that a lengthy legal battle would have significant implications for the Telstra acquisition. 

 

Telstra itself, however, appeared unworried, saying at the time that the deal would continue on schedule and that the legal issues with PNG were for Digicel to navigate alone. 

 

Now, both Telstra and Digicel have announced that the acquisition has been completed, with the dispute with the PNG government seemingly ongoing.

 

"With respect to the Papua New Guinea additional company tax, (Digicel) has made arrangements to resolve the matter with the PNG tax authorities," said Telstra in a statement. "Telstra is not part of this process, and the outcomes of this process are a matter for (Digicel),” said the company in a statement. 

 

Digicel themselves provided a little more information, saying that international arbitration was being sought.

 

“The Independent State of Papua New Guinea has agreed to enter into a binding international arbitration process to resolve the disputed one-time PGK 350 million (approximately US$ 99.4 million) exit tax and to waive a further PGK 50 million (approximately US$ 14.2 million) sought in respect of non-payment of the tax to date,” said Digicel in a statement. “As part of this process US$ 99.4 million has been placed in escrow on closing pending the outcome of the arbitration which will take place in Singapore.”

 

The deals completion will come as a major relief to Digicel, which has been languishing under the weight of roughly $7 billion in debt. Beyond the reduction of debt, the funds will also allow the company to increase its investments in its remaining 26 markets, primarily in the Caribbean, Central America, and the Asia Pacific regions.