Cell C downgraded to lowest junk status after missing payments

UPDATE: Cell C responds to Fin24

"Cell C is currently engaged in a recapitalisation process, which is essential to delivering a sustainable capital structure for Cell C. As part of this process, various capital and interest payments to lenders have been deferred. This has no direct impact on the underlying business of Cell C and the operational performance of the company remains strong."

Johannesburg - South Africa's third largest mobile network Cell C has been downgraded to a ‘D’ credit rating by ratings firm Standard & Poor’s (S&P) – the lowest junk status rating for a corporate company. 

S&P’s decision to lower the mobile network’s credit status change from ‘CC’ to ‘D’ reflects the company's decision to miss interest payments in January 2017 on its €400m (R5.7bn) in senior secured bonds due in 2018. 

“Cell C had received waivers from its lenders for missing principal payments through January 2017 on its debt instruments, but it is now beyond the waiver period and has missed interest payments on its senior secured bonds,” a statement by S&P said. 

READ: Cell C blames rand, inflation for data price hikes

S&P also said that Cell C had not sought bankruptcy protection, but expected that it will continue to operate and meet its non-debt obligations, including payroll and suppliers.

“The revised recovery rating and lower recovery prospects are mainly due to uncertainty over a potential buyer's ability to have unrestricted use of Cell C's spectrum, and the resulting impact to its value in a bankruptcy scenario,” S&P said. 

In July 2015, S&P issued a warning over Cell C’s R2bn unsecured debt in light of the company continuing to generate negative free operating cash flow.

S&P placed Cell C’s 'B-' long-term rating on credit watch negative at the time. 

In November last year, Cell C withdrew a bond placement as the company said it can reduce its maximum net borrowings to less than R8bn through planned restructuring. 

Johannesburg Stock Exchange (JSE) listed mobile services company Blue Label Telecom [JSE:BLU] is currently in the process of acquiring a 45% stake in South Africa’s third largest mobile network for R5.5bn.

READ: Blue Label to inject R5.5bn in Cell C

The bond placement process was expected to reduce Cell C's existing net borrowings to R8bn.

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In a circular published by Blue Label in October to shareholders, it was revealed that Cell C posted a profit of just R2.8m for the six months ended June 30 2016.

This compares to a loss of R1.15bn for the period ended June 30 2015.

The financial statements reveal that Cell C recorded revenues of R6.96bn for the half-year period ended June 30 2016, compared to just over R6bn for the previous comparable interim period.

Meanwhile, the Blue Label circular revealed that Cell C posted a net loss of R5.6bn for year ended December 31 2015 with revenues of R13.2bn for that year.

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