Australia wants to buy Digicel Pacific to block Chinese influence, but are they really interested?
A government-backed Telstra deal to buy Digicel Pacific for a rumoured $2bn would block the Chinese, but are we being bluffed into bidding up the price?
Australia and Telstra could be entangled in a fake bidding war for regional telco Digicel Pacific, whose strategic importance to China might be being overstated, a strategic expert has warned.
The comments by Jeffrey Wall, a contributing author to the Australian Strategic Policy Institute, come after Telstra chairman John Mullen said that while Telstra would definitively not make an investment that did not benefit shareholders, there was a role for companies to help their government.
Telstra this week admitted to the ASX it had been in talks to buy Digicel Pacific for a rumoured $2bn after the Australian government, which would largely fund the deal, raised the idea.
Government sources have told The Australian the potential deal is a strategic move to prevent China from gaining a stranglehold on the region’s telecommunications options.
Digicel Pacific operates across PNG, Fiji, Nauru, Samoa, Tonga and Vanuatu. According to a US Securities and Exchange Commission filing last year, it commanded as much as a 91 per cent of PNG’s mobile phone market at that time.
Mr Wall, who was a strategic consultant to former PNG prime minister Peter O’Neill and writes regularly about the region, said while there were good reasons for Australian interests to own Digicel, blocking the Chinese from owning it wasn’t one of them.
He said he was “far from certain” China was even interested.
“I think what the Chinese are looking at is how can they expand their own influence without buying Digicel,’’ Mr Wall said.
“I don’t think Australia should be helping Telstra to buy Digicel just to block China, because it won’t block China.’’
But if Australia wanted to bolster the region’s telecommunications services, and in doing so assert its influence as a benevolent regional power, it was an opportunity to do so, Mr Wall said.
“It doesn’t cut China out but it gives us a bit of an advantage which we haven’t had. There’s no Australian presence at the moment in the region on communications.’’
Mr Wall said the Digicel operations were probably only economically viable in PNG, and it was an expensive service that used old technology.
“That’s been a cause for complaint,’’ Mr Wall said.
Mr Wall said Telstra could enter the market and modernise and make it more competitive.
He said the network was an important strategic asset to communicate with the PNG population who were widely dispersed and most easily reached via mobile networks.
“It’s an important strategic asset but I don’t think if Australia was to buy Digicel through Telstra or whatever, I don’t think that would in any way stop the Chinese. They’re already there.’’
Mr Wall said the prime beneficiary of a supposed bidding war between Australia and China would be Digicel’s billionaire Irish owner Denis O’Brien, who could command a much higher premium.
“Does he want too much for it? The answer is undoubtedly yes,’’ Mr Wall said.
“It may be that the Chinese are smart enough to say ‘if we just put our foot in the water, Australia will panic and will have to spend more money to buy it’.’’
Telstra told the ASX on Monday that Digicel Pacific generated EBITDA of $US235m in calendar 2020 “with a strong margin, as well as extensive network coverage’’.
Mr Mullen, speaking at an Australian Council of Superannuation Investors (ACSI) conference on Wednesday, said while the Digicel deal would probably not have been on Telstra’s radar without the government’s involvement, any deal had to stack up financially.
“Obviously I’m pretty limited as to what I can say but what I can say is that Telstra will not be making any investment that doesn’t make sense for its shareholders and deliver adequate financial returns,’’ Mr Mullen said.
“That’s not just a platitude, it’s an absolute fact. We will not enter into any transaction that isn’t financially accretive.
“That said, can you help your sovereign government in current times, particularly if you’re a critical infrastructure provider? Of course you can. The key is to try and find a balance between the two.
“There’s no decision made, no outcome yet. If we can help the government we will, but we will not do it at the expense of shareholders.”
In response to a question, Mr Mullen admitted the Digicel deal probably would not have been on Telstra’s radar without the government’s intervention.
“Or, it would have come across our desk, like so many other things, but would it have been something one would have gone further in discussion with if there wasn’t a government interest? Probably not.
“But if something does come of this it will be because we can meet both government expectations and financial returns for the company. If we can’t do both of those then it can’t happen.”
More Coverage
Cyclists seeking workplace solutions
A survey has found people would be more likely to cycle to work if they had a workplace closer to home, and cyclists say employers should do more to encourage them.
Macquarie set to pump $39bn into UK
Australian infrastructure giant Macquarie plans to back energy, waste, transport and water sectors in the UK. But its toxic history with Thames Water could be divisive.