Mobile operator Cell C has struggled to make a sustainable business case since inception in 2001, failing to keep up with the investments made into the market by rivals Vodacom and MTN.
The company has been in business distress for a number of years, buckling under the weight of its heavy debt burden.
The operator may have thought it had found a saviour in 2017, in the form of Blue Label, after it acquired 45% of the issued share capital of Cell C for R5.5 billion.
However, Cell C’s financial challenges have proven to be a difficult task to manage, to the extent that Blue Label took the decision to fully write off its investment in the mobile firm in May 2019.
Blue Label on Friday (28 February) reported financial results for the half-year ended November 2019, showing a turnaround in earnings following its decision to fully impair its exposure to Cell C.
It noted that fair value losses of R493 million, incurred by Cell C were excluded from its results.
Blue Label said it appointed an independent third-party valuation specialist to determine the value-in-use based on cash flow projections incorporated in the five-year Cell C business plan.
“They applied assumptions relating to the business, the industry and economic growth. Cash flows beyond this point were then extrapolated, applying terminal growth rates that did not exceed the expected long-term economic growth rate,” Blue Label said.
“The valuation remained at a nil value at 30 November 2019.”
Blue Label noted that long-form agreements relating to an extended national roaming agreement, were signed by Cell C and MTN on 18 November 2019, subject to certain conditions precedent.
If successfully implemented, the national roaming agreement will result in substantial cost-savings for Cell C by reducing network and capex spend, it said.
A recapitalisation of Cell C and/or a debt restructuring is essential in order to avoid further default on debt repayments when due.
“A capital restructure programme is in process and if successfully implemented would have a positive impact on Cell C’s solvency and liquidity position, Blue Label said.
“These ongoing matters cast significant doubt over Cell C’s ability to continue as a going concern” Blue Label warned.
In January 2020 Cell C noted that it had defaulted on the payment of interest on its $184 002 000 note which was due in December 2019.
It also defaulted on the payment of interest and capital repayments to the respective bilateral loan facilities between Cell C and Nedbank Limited, China Development Bank Corporation, Development Bank of Southern Africa Limited and Industrial and Commercial Bank of China Limited which was due in January 2020.
“Noteholders are aware and support that Cell C is committed to resolving the situation by agreeing to restructuring terms with its lenders while it also continues to work proactively with all stakeholders to improve its liquidity, debt profile and long-term competitiveness,” Blue Label said.
Blue Label said that if Cell C subsequently generates profits, it will resume recognising its share of profits only after its share of the profits equals the share of losses not recognised.