Blue Label surges over 10% on new deal to restructure, refinance Cell C

Creditors to be paid 20 cents to the rand. 
Image: Moneyweb

The share price of JSE-listed Blue Label Telecoms surged more than 10% in morning trade on Wednesday, following the group revealing in a Tuesday afternoon Sens statement that it has signed a non-binding term sheet with key stakeholders to conclude the recapitalisation of debt-laden mobile phone operator Cell C.

Blue Label Telecoms shares over 7 days

In the Sens update, Blue Label says it will loan Cell C R1.46 billion to help it repay some of its secured lenders. Cell C will use the funding to pay creditors 20 cents to the rand.

Cell C has a debt burden of around R7.3 billion.

“Certain secured lenders have indicated that they wish to remain invested in Cell C. These secured
lenders will be entitled to loan an amount equal to the 20c received, back to Cell C under a new loan
arrangement [reinvestment instrument)],” Blue Label notes.

Read: Cell C shows improved performance as it eyes recap deal

“The reinvestment instrument, which will be interest bearing and secured, will have an aggregate capital face value equal to 2.75 times of the amount advanced. In addition, the participating lenders will be entitled to share pro-rata in a fresh issue of ordinary shares in Cell C at a nominal value.

“All shareholders of Cell C will dilute proportionately to enable the issuance of these ordinary shares to the participating lenders,” the group adds.

Blue Label points out that part of the agreement plan is to restructure and refinance Cell C with the purpose of deleveraging its balance sheet.

“Cell C has implemented a turnaround strategy, focusing on operational efficiencies, reducing operational expenditure, and optimising traffic. This includes a significant reduction in capital expenditure and a conversion of a fixed cost infrastructure-based network to a variable operational expenditure model,” it states.

Read:
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Cell C starts moving customers to Vodacom network

“This, together with the recapitalisation of the current debt structure, will result in a significant improvement of its liquidity and ensure the long-term sustainability of the company.”

To allow more liquidity for the mobile network operator, Blue Label also announced that it will purchase R2.4 billion worth of prepaid airtime from Cell C while it postpones the R1.1 billion loan repayment owed to it.

The prepaid airtime and electricity provider holds a 45% stake in Cell C, making it its largest shareholder.

Palesa Mofokeng is a Moneyweb intern.

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