A big restructuring at Cell C, which would see the company’s debt reduced by more than half, to less than R8bn, may soon result in it receiving a ratings upgrade from Standard & Poor’s.
In a note published on Tuesday, the ratings agency said it has placed its “B-” long-term rating on Cell C on “CreditWatch with positive implications”.
At the same time, it has placed its “B-” issue rating on the company’s senior secured debt on “CreditWatch positive”.
“The CreditWatch placement is based on the potential debt reduction that could occur if Blue Label Telecoms and Cell C staff acquire 35% and 30% stakes, respectively, in Cell C. Oger Telecom — which would retain the remaining 35% stake through 3C Telecommunications — aims to reduce Cell C’s debt to R6bn–R8bn from its current level of about R17bn.”
The agency said that if debt is reduced to the lower project levels, it could result in the adjusted debt to Ebitda (earnings before interest, tax, depreciation and amortisation) ratio improving to less than four times.
“In such a case, we could raise the rating by one to two notches as a result of its improved financial profile, if we continue to expect adequate liquidity and operational performance in line with our current forecast, and if the company’s new owners commit to a financial policy of sustainably maintaining the improved capital structure.”
Under the restructuring, all debt will be converted into rand, whereas currently 90% is US dollars and euros. Such a move will “reduce the currency risk”, Standard & Poor’s said.
“The CreditWatch placement reflects our view that the potential ownership and recapitalisation will deleverage Cell C’s balance sheet,” it said.
“A positive rating action will depend on Blue Label Telecoms and Cell C’s staff members successfully acquiring their proposed stakes, the proceeds being used primarily for debt repayment, maintenance of adequate liquidity, and no material weakening of our current forecast, resulting in adjusted debt to Ebitda remaining sustainably and substantially below five times.”
Downside risks include significant changes to or a cancellation of the transaction, weaker operational performance than expected, or a more aggressive financial policy under the new ownership.
The agency said it intends resolving the CreditWatch placement in the next six months, once there is clarity on the recapitalisation and financial policy of the new ownership. — (c) 2015 NewsCentral Media
- See also: Blue Label to buy 35% of Cell C for R4bn