Though there is “significant doubt” over Cell C’s ability to continue as a going concern should a planned recapitalisation not materialise, the mobile operator’s biggest shareholder, Blue Label Telecoms, said on Friday that “management believes it is more likely than not” that the company will survive.
In its interim results for the six months to 30 November 2019, Blue Label said Cell C’s expanded roaming agreement with MTN South Africa, announced in November last year, will significantly reduce its capital expenditure, too, putting it on a more sustainable financial footing.
Cell C management is working to secure a recapitalisation from prospective investors, including the Buffet Consortium. A deal had been expected to be announced at the end of last year. The mobile operator is expected to publish its annual results for the financial year ended 31 December 2019 in March, where an update on the discussions with the potential investors may be forthcoming.
Blue Label’s R5.5-billion investment for a 45% stake in Cell C has proved disastrous for the company – last year it was forced to write down the carrying value of its investment in the business to nil.
For the six months ended 30 November 2019, Blue Label 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. The valuation remained at a nil value at 30 November 2019,” it said.
Blue Label said a successful recapitalisation of Cell C and/or a debt restructuring is “essential in order to avoid further default on debt repayments when due” by the mobile operator.
“A capital restructure programme is in process and, if successfully implemented, will have a positive impact on Cell C’s solvency and liquidity position. The impact of the above transactions in progress relating to a national roaming agreement and the recapitalisation of Cell C were not in effect as at 30 November 2019 and as such have not been accounted for in the valuation at that date,” it said.
“These ongoing matters cast significant doubt over Cell C’s ability to continue as a going concern should they not materialise and the group will update the market on any significant developments related to these ongoing matters as and when they occur.”
Last month, Cell C notified its note holders – debt providers – that is had defaulted on the payment of interest on a US$184-million note that was due in December 2019 as well as interest and capital repayments related to the respective bilateral loan facilities between Cell C and Nedbank, China Development Bank, Development Bank of Southern Africa and the Industrial and Commercial Bank of China which was due in January 2020.
“Note holders 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.
As Blue Label’s share of Cell C’s losses exceed the carrying amount of the investment (nil), the group has ceased recognising its share of further losses. If Cell C subsequently generates profits, the group will resume recognising its share of profits only after its share of the profits equals the share of losses not recognised. – © 2020 NewsCentral Media