Social grants provider Net1 is buying 15% of Cell C

Cell C's head office in Johannesburg. (Gareth van Zyl)
Cell C's head office in Johannesburg. (Gareth van Zyl)

Johannesburg - Electronic payments provider Net1 UEPS Technologies, which has found itself at the centre of a social grants storm in South Africa, has confirmed that it has agreed to buy a R2bn, 15% stake mobile network Cell C.

Earlier this week, Blue Label Telecoms [JSE:BLU] said it reached a last-minute agreement to acquire 45% of Cell C, which is South Africa’s third largest network with about 24m users.

JSE-listed Blue Label said that a “binding umbrella restructure agreement” had been entered into by itself, Cell C, debt providers of Cell C, and a “third party investor”.

In a previous announcement late last year, Blue Label said that Net1 [JSE:NT1] - which is listed on the JSE and the New York’s Nasdaq - would be part of the Cell C deal, and on Wednesday, Net1 confirmed that it is the "third party investor".

The deal is expected to help Cell C cut its maximum net borrowings to about R6bn. Net1 said in a Sens announcement to shareholders that it is “also a party to the umbrella restructure agreement with Cell C and has offered to acquire a direct stake of 15% of the issued share capital of Cell C for a consideration of ZAR 2 billion”.

Cell C said that it has further concluded a memorandum of understanding to acquire 49.6% of DNI-4PL Contracts with an option to acquire a controlling stake in DNI in the future.

DNI is a distributor of mobile subscriber starter packs for Cell C and also distributes pre-paid airtime through a network of field operatives and agents.

Net1 said the proposed investments in Cell C and DNI are subject to conditions, including a due diligence process as well as external approvals. Net1 said it plans to “settle the purchase consideration for these two investments using a combination of surplus cash, debt and new equity placement”.

Emerging social grants crisis

Net1’s announcement about its stake in Cell C comes as it’s been embroiled in a growing debacle around the payment of social grants in South Africa.

In 2012, Net1 unit Cash Paymaster Services (CPS) won a R10bn tender to electronically distribute social grants to millions of recipients in South Africa on behalf of the South African Social Security Agency (Sassa).

The number of social grant recipients today is said to be at 17 million, according to Sassa.

But the contract ran into problems in April 2014 when the Constitutional Court declared it invalid owing to irregularities in the awarding of the deal. The court further ruled that Sassa needed to redo the tender process.

However, after launching a new tender process in 2015, SASSA subsequently did not award a new contract as it said the bids were non-compliant.

Net1 did not participate in the fresh tender process and at a Parliament briefings this year, Sassa said that it was not ready to assume the payment function itself by April 1, as previously planned.

Subsequently, the crisis has started to escalate after Sassa also withdrew an application to the Constitutional Court this week to extend a payment distribution contract with CPS.

The debacle has sparked confusion and concerns over whether millions of people will continue to receive grants, putting the country’s welfare system in limbo.

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