Blue Label Telecoms, the majority shareholder of South African mobile network operator Cell C, has announced that it has concluded binding long-form agreements with Cell C and various Cell C financial stakeholders for the recapitalization of the company.
The recapitalization of Cell C will be in the form of new money to restructure Cell C’s financial and operational liabilities and stabilise the company.
According to Blue Label, Cell C embarked on a turnaround strategy in mid-2019, focusing on operational efficiencies, reducing operational expenditure, and optimising traffic. This strategy included a move away from a capital-intensive build-and-own network model to a scalable infrastructure sharing model that provides variable operational expenditure.
The recapitalization of the company, together with the recapitalisation of its current debt which stands at R7.3 billion (~$414 million), will result in a significant improvement of liquidity and ensure the long-term sustainability of Cell C, Blue Label stated.
“Day 1 post recap Cell C will have achieved a significant reduction in the debt of the business to enable us to move forward and make the business more streamlined as a new, reinvigorated, and fit-for-purpose entity to compete in the dynamic and changing telco landscape. We are well-placed to play in a market that is now made up of infrastructure buyers and sellers,” said Douglas Craigie Stevenson, Cell C CEO.
To service the company’s debt, Blue Label together with other debt providers will provide liquidity via a secured loan of R1.46-billion. 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.
Additionally, an amount of R1.1-billion owed by Cell C to Comm Equipment Company (a wholly owned subsidiary of The Prepaid Company (TPC), which is a subsidiary of Blue Label Telecoms) will be deferred and repaid in equal monthly instalments over 60 months.
With regards to financing Cell C’s working capital requirements, TPC has committed to purchasing Cell C prepaid airtime to the value of R1.2-billion. TPC will also 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.
TPC, with contribution from other financiers, will also purchase certain levels of stock from Cell C based on an agreed monthly schedule or in line with market requirements.
The recapitalization process could not have come at a better time for Cell C which has been bleeding cash due to operational deficiencies caused by its heavy debt load.
With an aim to soon launch a 5G network after purchasing R288 million worth of spectrum at the ICASA auction in March, the network is looking to actively compete in South Africa’s intense 5G royal rumble.