Analysts dubious as M-Cell flies

M-Cell shares yesterday gained more than R1 to close at R12 on news that its wholly owned company MTN could be close to restructuring more than $200 million in unhedged debt that has been worrying investors.

Reports said MTN confirmed that it is looking at selling and leasing back part of its network in SA, or outsourcing the entire network, to help satisfy the voracious cash appetite of MTN Nigeria, in which it holds a 77% stake.

M-Cell recently reported that its financing costs had increased by more than 70% in the last financial year to more than R315 million, mostly on the back of the debt raised to start the Nigerian operation. It has more than R21 billion in unhedged dollar-denominated debt. M-Cell values its property, plant and equipment assets at R8.3 billion.

"The group continues to explore avenues to reduce its unhedged dollar exposure," the company said when it reported its results last month.

Yesterday MTN said one of those avenues was selling parts of its network to supplier Ericsson, although no deal was yet in the pipeline. Ericsson has similar deals in place elsewhere in the world.

But some analysts are dubious, despite continued pressure on M-Cell to restructure the debt and investors` obvious joy at the prospect.

"It is not a bad thing, but it all depends on the pricing," one says. "Realistically I don`t expect it to happen," says another. "If I was Ericsson and I was going to buy a network that is already rolled out, especially if I was going to pay in hard currency, I`d want a big premium on it."

Analysts say an outsourcing deal would amount to swapping the local network, in a mature but stable market, for a network in Nigeria, which has massive growth potential but carries political risk. It would also leave MTN paying lease fees on the local network in the long run, and would strengthen its dependency on Ericsson.

Some also speculate that part of the cash raised, if a deal is reached with Ericsson, could be paid out in a special dividend to give a cash injection to Johnnic, the largest shareholder at 36.6%.