Government and Telstra make 2 billion offer for Pacific telco assets

More than $1.5 billion in taxpayer money could be on the line to help Telstra buy telecommunications assets in the Pacific to keep them out of Chinese hands, under a joint offer lodged by the federal government and the telco giant.

Telstra has asked Digicel’s billionaire owner Denis O’Brien to sit on the board of the company and for future revenue forecasts to be underwritten for three years as part of the $2 billion bid, according to sources close to the negotiations.

Telstra and the federal government have made an offer for Denis O’Brien’s DigicelCredit:Bloomberg

The sources, who spoke anonymously because they were not authorised to speak publicly, said Telstra would pay between $200 and $300 million for the assets, while the government would pay the rest. However, Mr O’Brien may walk away from the offer, the sources said, because he is frustrated by the conditions that Telstra requested on Thursday.

Barrenjoey is advising Telstra on the deal while Macquarie is advising the government, the sources said. Government and industry sources also confirmed that former Treasurer Joe Hockey’s firm Bondi Partners has been engaged by Digicel to help sell its Pacific assets.

Under the government’s proposal, the nation’s export credit agency, Export Finance Australia, would provide the money. The Australian Financial Review reported on Thursday that the government had approached Telstra to assess its interest in taking an ownership stake in Digicel’s Pacific operations.

Digicel has been knocked by an absence of tourists travelling to the Pacific because of the coronavirus pandemic, which has affected the amount of money it makes from international roaming. Digicel has a 3G and 4G mobile phone network as well as access to undersea cables in the region.

Telstra’s existing international division holds a large subsea cable network that has licenses in Asia, Europe and the US. The value in this division comes from the facilitation of data traffic for the company’s major clients including Google, Facebook and Microsoft.

The sale of Digicel’s assets has piqued the interest of the federal government partly because of concerns that a Chinese company could take control of the assets.

Australian security agencies accept there is a serious risk of the assets falling into Chinese hands. However, senior figures within the government and the Department of Foreign Affairs and Trade are also concerned about the precedent set by a debt-laden company using the China threat to extract money out of Australian taxpayers.

A spokesperson for the Department of Foreign Affairs and Trade said partnering on infrastructure development is a key part of Australia’s Pacific Step-up program.

“Where appropriate, the Australian Government supports Australian businesses investing in infrastructure in the Pacific, including communications infrastructure, which plays a key role in economies across the region,” the DFAT spokesperson said.

“We do not comment on individual proposals.”

A Telstra spokeswoman declined to comment.

Telstra chief executive Andy Penn said at the National Press Club it was not appropriate to comment on discussions between the government and the telco about Digicel.

Australian private equity company Pacific Equity Partners held discussions with Digicel representatives last year, but the talks did not progress due to price.

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Zoe Samios is a media and telecommunications reporter at The Sydney Morning Herald and The Age.

Anthony is foreign affairs and national security correspondent for The Sydney Morning Herald and The Age.

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