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RMB, Investec in talks with Cell C over funds

As the mobile operator continues to struggle under its debt burden.
Image: Moneyweb

Cell C is in advanced talks with FirstRand’s unit Rand Merchant Bank and Investec to provide the South African wireless carrier with about R4 billion of fresh capital, according to people familiar with the matter.

The country’s fourth-largest mobile-phone provider, partly owned by Johannesburg-listed Blue Label Telecoms, is nearing the end of a recapitalisation plan to pay down debt, said the people, who asked not to be identified as the information is still private. Deals have been concluded with former creditors to pave the way for new funding, they said.

Cell C has been struggling under a debt burden of about R10 billion, while its customer growth has come under pressure due to South Africa’s weak economic outlook and the dominance of two larger companies, MTN Group and Vodacom Group.

Cell C said its recapitalisation was in progress and at a sensitive stage, with details to follow when it is finalised.

“RMB can confirm that we are in discussions with Cell C and its shareholders regarding financing,” a representative for the lender said. “Client confidentiality precludes us from sharing any details.” Investec declined to comment.

A previous plan for no 3 wireless operator Telkom SA SOC to combine its mobile operations with that of Cell C fell apart in 2019 and the recapitalisation was approved last year. Cell C previously restructured its finances in 2016, when Blue Label took a 45% stake.

Blue Label’s shares are up 9.3% this year and traded 0.2% lower at the close in Johannesburg.

© 2021 Bloomberg

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Cell C did not manage the R10 billion so well, what makes them think they will manage the R4 billion loan any better?

The key difference is the size of debt (R4bn vs R10bn) and the interest on the debt. The previous debt had high interest costs, which included a 5% hedge on the FX, so about 15%, with the new debt being local, so let’s say 10%. So the difference in interest costs are R400m vs R1.15bn p.a.. In addition, the business seems to have turned the corner on an operational basis given the new capex light model, posting a positive FCF (ex interest) for the first time at last reporting. Still early to call but let’s see…

Looks like lessons have been learnt and this business now streamlined and well positioned for a turn around. I concur with this analysis

You either look forwards or backwards – I find when investing it’s much more profitable to look at future earnings than past earnings….

End of comments.

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