Injection brightens Cell C’s outlook

MOBILE operator Cell C’s cash injection from Net 1 and Blue Label Telecoms on Tuesday received a thumbs up from the market with ratings agency Moody’s revising the company’s outlook from “developing” to “positive”.

Post and Telecommunications Minister Siyabonga Cwele described the company’s change in fortunes as a breath of fresh air.

Mergence Investment Managers’ portfolio manager, Peter Takaendesa, said the move would significantly reduce Cell C’s net debt from R23 billion to less than R6bn and take the company to a relatively sustainable position over the mid term.

Takaendesa said the injection would give shareholders an opportunity to map out a clear strategy to address Cell C’s competitive disadvantage against its dominant rivals and support the company through the transformation from a small to a significant player in the telecommunications industry.

“The balance sheet has been repaired and it is now up to finding capital to fund its growth. The new diversified shareholder base will also help materially in case the company will require a further capital injection over the mid-longer term,” Takaendesa said.

“Cell C has been burning cash for over a decade and continuing to operate the same way it has done will not change its fortunes.”

Boost

Cell C received a major cash boost on Monday when Net1 UEPS forked out R2bn for a 15 percent stake in the company. The transaction came just days after Blue Label Telecoms shareholders approved the purchase of a 45 percent stake in it for R5.5bn. Cell C said the deals would also allow black people to have a 44.51 percent shareholding within 12 months and be fully owned by South African investors.

Moody’s said the positive outlook assigned captured the steps the company had taken to improve its capital structure.The rating agency, however, was quick to point out Cell C’s liquidity position remained weak. Takaendesa said the rating was unlikely to have a material impact on the business in the near term as Cell C had already raised the capital required to stabilise the business.

“However, further upgrades could help reduce their cost of funding over the mid-longer term. Telecoms is a capital intensive business and the new shareholders will have to closely monitor that the credit rating keeps improving to fund further capital requirements at a reasonable cost,” he said.

Cwele said the investments had saved 2 500 direct and 15 000 indirect jobs in areas such as distribution and suppliers.