Blue Label Telecoms [JSE: BLU], Cell C's largest shareholder, said on Wednesday that DNI 4PL would be buying its interests in Blue Label Mobile as well as taking over 3G Mobile from its subsidiary The Prepaid Company.
The sales are subject to various suspensive conditions, and intended to "ensure a more liquid balance sheet", according to Blue Label.
"Over the past two years, significant investments were made, necessitating an increase in interest-bearing debt in order to ensure that the group’s working capital requirements continued to be met. Accordingly, the Blue Label board of directors have made a decision to deleverage the business in order to ensure a more robust and liquid balance sheet going forward," the company said in an announcement on the JSE Stock Exchange News Service (SENS).
"The funds obtained from the proposed transactions will be applied to reduce Blue Label's current interest-bearing debt."
The disposals "will not have a negative impact on the extensive distribution network that Blue Label has established," it added.
Blue Label will sell 809 ordinary shares of Blue Label Mobile, comprising 85% of the issued ordinary shares. The initial consideration payable is R350m, while an additional R100m will escalate at prime plus 2%, compounding annually in arrears from the fifth business day after the date on which all suspensive conditions are met and the Cell C board of directors pass the solvency and liquidity test as per the Companies Act, Blue Label said.
100% of shares in 3G Mobile, which distributes mobile devices and handsets to retailers and cellular network providers, will be sold to DNI for R544m. The initial amount will be adjusted depending on whether surplus or inadequate provision was made for bad debts or obsolete trading stock in the 2019 balance sheet.
Conditions for both transactions include approval by the relevant banks and regulatory bodies, and in the case of Blue Label Mobile, approval by minority shareholders.
DNI is a provider of pre-paid airtime services and mobile subscriber starter packs. Net1, the former social grants distributor which now focuses on low-cost banking, lending and insurance transaction technology, previously held a majority stake in DNI, which it reduced earlier this year. Net1 distributes mobile subscriber starter packs for Cell C via DNI.
Earlier in September, the JSE threatened to suspend Blue Label over a delay in releasing its results for the year to end May. It set a final deadline of September 30, Fin24 previously reported.
Blue Label warned that it might report a headline loss of as much as 314c per share, down from a profit of 115c the previous year. It had taken a battering from its 45% stake in Cell C, as well as reporting losses from GloCell and payment solutions group Oxigen India.
Cell C recently had its credit rating cut to D by agency S&P Global, having failed to make interest payments that were due in July.