Cell C and Blue Label rustle up backing for tie-up

CELL C and Blue Label Telecoms are racing against time to secure signatures from creditors in a bid to conclude their multibillionrand tie-up.

Cell C owes about R23-billion to several financial institutions including the China Africa Development Fund, the Industrial and Commercial Bank of China (ICBC), Nedbank and the Development Bank of Southern Africa.

Blue Label plans to close the deal on Tuesday to buy a 45% stake in Cell C for R5.5-billion.

Total equity investment is R16billion from Cell C’s holding company 3C Telecommunications, Blue Label Telecoms, and Cell C’s management and staff. The deal with Blue Label is expected to cut Cell C’s debt to R6-billion.

Sources said creditors wanted guarantees and timelines for debt to be paid after Cell C recently missed some payment obligations.

At the time of going to press, the China Africa Development Fund had not responded to questions. Nedbank said it did not disclose details of its banking relationships with clients due to client confidentiality. ICBC could not be reached for comment.

The deal also faces a legal hurdle. Black equity holder CellSaf, which has a 25% stake in 3C Telecommunications, is said to be considering an application for a court interdict as the deal would significantly reduce its stake to about 8%. Oger Telecoms owns 75% of 3C Telecommunications.

If the deal with Blue Label goes through, 3C will end up owning 30% in Cell C.

This will be CellSaf’s second attempt to stop the deal.

CellSaf did not respond to Business Times questions.

How it all unfolds is likely to hinge on the restriction on Cell C

The reduction in black ownership at Cell C may face regulatory scrutiny.

It emerged this week that Telkom had put in a R7-billion offer for a 65% stake in Cell C while the rest would be owned by creditors. However, on Wednesday the offer was rejected by Cell C’s board because it had already entered into legally binding agreements with Blue Label.

But according to sources, Telkom has not given up on Cell C and is talking to some of the major creditors in a bid to get them to reject the Blue Label deal.

Cell C said this week that its recapitalisation programme remained on track and was supported by its equity investors as well as the existing lenders to the business.

Cell C’s continued financial strains saw the company downgraded by Standard and Poor’s to a “D” rating from “CC” on its à400-million senior secured bonds due in 2018.

Frost & Sullivan research analyst Lehlohonolo Mokenela said on Friday that, after registering high levels of growth over the past couple of years, Cell C’s inability to meet its debt payments had been raised as a key concern. The potential acquisition of a stake in the company by Blue Label was expected to lead to an injection of capital to ease the operator’s debt burden.

A deal with Telkom would be viewed as a “better strategic fit”, given the strengths of the two operators. “However, how it all unfolds [is likely to] hinge on the restriction placed on Cell C under their agreement with Blue Label as well as the operator’s lenders.

“Since Cell C is already in conversation with Blue Label Telecoms it seems the deal between Blue Label and Cell C needs to first reach some conclusion before Cell C can consider Telkom’s proposal,” he said.