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Airtime purchase deal with Investec, First Rand to refinance Cell C

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Blue Label Telecoms joint-CEOs Mark and Brett Levy.
Blue Label Telecoms joint-CEOs Mark and Brett Levy.

The long-awaited recapitalisation of embattled mobile operator Cell C is close, as Blue Label Telecoms, the largest shareholder of Cell C, has concluded a term sheet with financiers Investec Bank and First Rand Bank.

Blue Label has been involved in strenuous negotiations with potential funders for the past 18 months and yesterday announced the deal with the financial institutions.

The JSE-listed group, which posted its year-end results yesterday, wrote off Cell C in the 2019 financial year, as the mobile operator faced mounting financial pressure.

Yesterday, Blue Label advised shareholders there is silver lining for Cell C after the conclusion of an airtime purchase deal with Investec and First Rand.

“Shareholders are advised that the Prepaid Company, a wholly-owned subsidiary of Blue Label and a shareholder of 45% of the issued share capital of Cell C Limited, has concluded a term sheet for an airtime purchase transaction with Investec Bank, First Rand Bank (acting through its Rand Merchant Bank division) and other financiers, the proceeds of which are intended to be utilised for the recapitalisation of Cell C,” said Blue Label.

According to the company, this arrangement is subject to the conclusion of all legal documentation and fulfilment of all conditions precedent under such legal documentation.

In response to the development, Cell C says this is a positive step for the mobile operator’s recapitalisation; however, it wouldn’t be drawn to give details of the proposed transaction.

“The announcement is between shareholder and funders. We acknowledge public interest; however, Cell C will update the market, and provide commentary on the overall transaction that directly affects the financial position of the mobile network operator, at the appropriate time.”

Litmus test

Cell C will release its own first half results in October.

Blue Label notes that if Cell C is able to pass a solvency and liquidity test, the primary obligation in respect of the put options are transferrable to Digital Ecosystems (DE), formerly Blue Label Mobile, in terms of the agreement concluded with it in September 2019.

An agreement between Blue Label and DE was reached this month, whereby the parties agreed that Blue Label’s primary obligations to the minority shareholders will be transferred to DE ahead of any Cell C test in respect of its solvency and liquidity.

This agreement is subject to the fulfilment of certain conditions precedent, says the company.

“If, however, Cell C is unable to pass the solvency and liquidity test in the future, the primary obligation in respect of the put options may revert back to Blue Label Telecoms,” it says.

Cell C says it remains focused on its turnaround strategy, which includes ensuring operational efficiencies, restructuring the balance sheet, implementing a revised network strategy and improving overall liquidity.

As part of its rejuvenation, Cell C has been transitioning into a digital lifestyle company, to fend off competition.

CEO Douglas Craigie Stevenson recently revealed his vision of transforming the company in three years: “To stay competitive, Cell C had to take a different approach against our larger rivals which are all heavily invested in capital-needy infrastructure – multiple operators with large-scale infrastructure simply doesn’t make financial sense. We will collaborate on infrastructure but compete on products and services.

“2020 laid the foundation for change − our earnings are up, our margins are stabilising and there is a single-mindedness on cost management. We are leading the way in building a reimagined Cell C that creates value for its stakeholders.”

Cell C CEO Douglas Craigie Stevenson.
Cell C CEO Douglas Craigie Stevenson.

Company evolution

Craigie Stevenson added that Cell C’s focus in the future will be on evolving to a digital lifestyle company as it transitions into a much more valuable entity.

Cell C has also been advocating for infrastructure-sharing, saying it would rather be focusing on being customer-centric, as opposed to being network-centric.

“It doesn’t make sense to us to continue spending billions on infrastructure; we would rather take a slice of that and pay Vodacom and MTN and get a ready-made quality network for our customers,” CFO Zafar Mahomed told ITWeb.

Meanwhile, for the year ended 31 May 2021, Blue Label Telecoms, which is led by brothers Mark and Brett Levy as joint-CEOs, generated revenue of R18.8 billion and declared gross profit of R2.38 billion compared to R2.12 billion in 2020.

The company said core headline earnings amounted to R788 million, equating to core headline earnings of 89.65c per share, of which R763 million related to continuing operations and R25 million to discontinued operations.

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