Cell C finalises long-awaited recap, gears up for fresh start

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Cell C concludes its   recapitalisation programme.
Cell C concludes its recapitalisation programme.
  • Cell C embarked on a turnaround strategy in 2019 in order to deal with its R7.3 billion debt pile.
  • The company's biggest shareholder, Blue Label Telecoms, wrote down value of its stake in Cell C to zero.
  • As part of the new debt restructure, Blue Label will provide liquidity via a secured loan of R1.46-billion.
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The long-awaited recapitalisation of debt-laden mobile phone operator Cell C has been concluded, setting the stage for a reboot of the firm with less capital-intensive business model.

The restructuring of the company's R7.3 billion debt pile will see its biggest shareholder, Blue Label Telecoms, provide liquidity via a secured loan of R1.46 billion, while it is also picking up R1.2 billion in pre-paid airtime.

Blue Label, which has 45% of the operator but will see this stake climb to just under half, once described the process of getting the lenders to agree on the company's debt restructure as "complex". In 2019, the company wrote down the value of its stake in Cell C to nil as the mobile phone operator battled to stay afloat. Blue Label owns shares in Cell C through its subsidiary, The Prepaid Company (TPC).

Cell C says a portion of R1.3 billion of the debt funding will be used to pay out the secured lenders as per the accepted compromise offer of 20c for every R1 of debt, or an 80% haircut.

Secured lenders who elected to remain invested in Cell C will loan an amount equal to the 20c received from the compromise offer under a new loan arrangement.

"The recapitalisation was the final and critical pillar of Cell C's turnaround strategy, deleveraging the balance sheet, providing liquidity to operate, and putting the company on a trajectory of growth and long-term sustainability," said Cell C Chief Executive Douglas Craigie Stevenson.

Finalising the recapitalisation will have "achieved a significant reduction in the debt of the business," he said, allowing the company to become "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 Craigie Stevenson.

All participating lenders in the new loan will be entitled to share pro rata in a new issue of ordinary shares in Cell C at a nominal value. All current shareholders will dilute proportionately to allow for this new issue of ordinary shares. The Prepaid Company's will then increase its stake from 45% to 49.53% after the completion of the restructuring.

Here is what TCP will undertake under the new plan:

• TPC will purchase Cell C prepaid airtime to the value of R1.2-billion.

• It will purchase four quarterly payments of airtime to the value of R300-million, with the first payment coming at the beginning of the 13th month following the recapitalisation of Cell C.

• Together with other third parties, TPC will purchase certain levels of stock from Cell C based on an agreed monthly schedule or in line with market requirements.

• TPC will raise R1.6-billion of the required funds from financial institutions, the settlement of which is to be repaid over a 24-month period in equal monthly instalments.

In mid-2019, Cell C embarked on a turnaround strategy with a focus on operational efficiencies and cutting costs. A new Cell C business includes a move away from a capital-intensive build-and-own network model to an infrastructure sharing model and the company already has roaming agreement with other network operators.

Cell C will update the market on its business operations on 29 September.

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