Relief for Cell C as recapitalisation concludes

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 22 Sept 2022
Douglas Craigie Stevenson, Cell C CEO.
Douglas Craigie Stevenson, Cell C CEO.

Cell C’s long wait for relief is over, as the debt-laden mobile operator has finally secured fresh funding to recapitalise the business.

The painstakingly-long cash-raising exercise was led by the telco’s largest shareholder, Blue Label Telecoms, which today announced it had concluded binding agreements with key financial backers.

The deal will see new money flow into Cell C, to address the company’s financial and operational liabilities.

“The recapitalisation was the final and critical pillar of Cell C’s turnaround strategy ─ deleveraging the balance sheet, providing liquidity to operate, and putting the company on a trajectory of growth and long-term sustainability,” says Douglas Craigie Stevenson, Cell C CEO.

The transaction includes restructuring of Cell C’s debt owed to certain secured lenders totalling R7.3 billion (fixed as at November 2019). Blue Label will provide liquidity via a secured loan of R1.46 billion.

The company explains the deal further: “A portion of R1.03 billion of this debt funding will be used to pay out the secured lenders as per the accepted compromise offer of 20c for every R1 of debt. Secured lenders who have elected to remain invested in Cell C will loan an amount equal to the 20c received from the compromise offer under a new loan arrangement referred to as the reinvestment instrument.”

Finer points

“This new loan arrangement will be interest-bearing, secured and give an aggregate capital face value equal to 2.75 times (or 55c) of the amount advanced; all participating lenders in the new loan will be entitled to share pro rata in a fresh issue of ordinary shares in Cell C at a nominal value,” it says.

“All current shareholders will dilute proportionately to allow for this new issue of ordinary shares. The Prepaid Company (TPC), a Blue Label subsidiary, will hold 49.53% of shares in Cell C after completion of the restructuring. Additionally, an amount of R1.1 billion owed by Cell C to Comm Equipment Company (a wholly-owned subsidiary of TPC) will be deferred and repaid in equal monthly instalments over 60 months.”

In dealing with operating liquidity, TPC will purchase Cell C prepaid airtime to the value of R1.2 billion (including VAT).

In addition, TPC will purchase four quarterly payments of airtime to the value of R300 million (including VAT); the first payment will be at the beginning of the 13th month following the recapitalisation of Cell C.

Also, in conjunction with other third-parties, TPC will purchase certain levels of stock from Cell C based on an agreed monthly schedule, or in line with market requirements.

Lastly, TPC is expected to raise R1.6 billion of the required funds from financial institutions, the settlement of which is to be repaid over a 24-month period in equal monthly instalments.

Deal endorsement

Analysts broadly welcomed the financial relief extended to Cell C, saying it will now be a lot easier for the telco to compete.

Cell C has for some time faced strong rivals on the market, and in recent months, it has been transitioning into a digital lifestyle company, as it tries to fend off competition and remain competitive.

With the new money, there is analyst consensus that strategies to garner market share will now be expedited.

“This recapitalisation, liquidity to be provided by Blue Label and the change to Cell C’s network strategy to reduce upfront capital expenditures will surely provide Cell C with breathing space to continue to optimise the business,” comments Peter Takaendesa, head of equities at Mergence Investment Managers.

However, he cautions: “The long-term viability of Cell C will depend on solid execution of the new strategy and continuing to receive favourable ‘network leasing’ terms from network infrastructure providers, given Cell C is effectively exiting the infrastructure provision market as part of its turnaround strategy.

“Most importantly, this is another opportunity for shareholder Blue Label to recoup some of its lost capital invested in Cell C over the past couple of years. I hope it works for them this time.”

Telecoms analyst Dobek Pater, from Africa Analysis, says: “It will make it operationally easier for Cell C to compete and will allow the executive to focus more on the market, rather than on the restructuring process.”

Pater says the funds will certainly improve Cell C’s operational abilities, but cautions: “I don’t know whether it will resolve all of Cell C’s ‘operational challenges’.”

For the broader telecom market, Pater believes this deal is welcome relief for the sector, as it means “Cell C will remain (and become a stronger) retail competitor in the provision of mobile and fixed mobility services.

“Also, this is important from an MVNO [mobile virtual network operator] market perspective, as Cell C is by far the largest host operator of MVNOs in SA. We expect the MVNO market to grow considerably over the next several years.”