Cell C dealt harsh blow by S&B’s global ratings
CELL C, South Africa’s third largest network operator, suffered a major setback yesterday when Standard & Poor’s (S&P) Global Ratings downgraded the company to “D” after it missed an interest payment.
A “D” rating is given to a company that is in default or in breach of an imputed promise, and it is the worst credit rating that S&P issues.
“Cell C faces constrained liquidity, because of an ongoing delay in concluding a restructuring agreement, and the company has missed interest payments on its senior secured bonds, as well as other unrated debt instruments,” said S&P.
Blue Label Telecoms, a virtual and physical distributor of secure electronic tokens of value, as well as a provider of transactional and valueadded services, last October announced it was intending to buy a 45 percent stake in Cell C for R5.5 billion in a move that would help the operator reduce its debts.
S&P also said it was lowering its rating to “D” and also lowering its issue rating on the company’s €400 million senior secured bonds due in 2018 to "D" from "CC".
A "CC" rating means a default imminent with little prospect for recovery. However, the rating agency said all was not lost for Cell C.
“We expect to reassess Cell C’s creditworthiness under its new capital structure if the company finalises the refinancing. The downgrade reflects our view that the delay in concluding the restructuring agreement continues to constrain Cell C’s liquidity, and that the company’s decision to miss interest payments in January 2017 on its €400m senior secured bonds due in 2018 is a default,” said S&P.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the downgrade further weakened the position of current Cell C stakeholders when it came to raising new capital required to recapitalise the business.
Takaendesa said the S&P statement indicated that Cell C had not yet sought bankruptcy protection and its current lenders had not exercised their acceleration rights.
“This suggests that there is still hope that the proposed recapitalisation will materialise, but with this further downgrade clearly weakening the negotiating power of existing stakeholders.”
Spiwe Chireka, a telecommunications, media and technology industry consultant, said it was surprising to see the downgrade while Cell C was still in the process of restructuring and recapitalising its business. “I think the downgrade was a bit harsh on Cell C. A downgrade is not good for the company, especially now that Cell C is linked with a listed company like Blue Label Telecoms. At this stage I am not sure how the downgrade will affect Blue Label,” she said.