Cell C builds 'war chest`

By Paul Vecchiatto, ITWeb Cape Town correspondent

Cape Town, 05 Jul 2005

Cell C is building a 'war chest` after raising another $270 million (R1.8 billion) on the international capital markets, following its successful placing of EUR400 million (R3.8 billion) last week.

Jonathan Newman, Cell C special adviser, says the latest placing was due to the better-than-expected response to the euro-denominated offering, which was three times oversubscribed.

"Although we had initially intended to place a high yield senior subordinated debt instrument, we were advised by Citibank [the book runner] not to do so, because of May`s market turmoil. However, the market showed good appetite for it and we placed it," he says.

The dollar-denominated instrument is an 11% senior subordinated note due in 2015. This complements the 8.625% first priority senior secured notes due 2012. The market regards the latter as a more secure investment as the holders have priority in being repaid.

Cell C initially indicated it wanted to raise a total of R5 billion from offshore markets as a means to restructure its funding model of $1 billion (R6 billion), which was fully subscribed. It has now raised a total of R5.6 billion from that source, once the rand`s fluctuations have been included.

Newman says that money, plus R500 million in revolving credit from local banks and "substantial" shareholder loans from primary shareholder Saudi Oger (which owns 60% of Cell C) gives the network operator a more flexible financing structure.

"These funds will be used primarily for our gearing up for number portability and to finance our part of the deal with Virgin," he says.

Last month Cell C and the Virgin Group announced they were in talks for a 50/50 partnership that would allow the UK-based group to enter the local market as an enhanced service provider.

"We have not finalised the deal yet, but talks are going extremely well," Newman says.

He also says Cell C`s network roll-out is almost complete - two years ahead of schedule - and no additional funding was required for this.

Apart from Saudi Oger, the other Cell C shareholders are CellSaf with 25% and El-Rashid Engineering with 15%.