If you owe the bank R1, that's your problem. If you owe the bank R7.3bn like Cell C, it becomes the bank's problem.

20 June 2022 is the day Cell C's noteholders will vote on whether they are willing to accept an 80% haircut on their debt as part of a deal to recapitalise Cell C. Cell C’s overall debt that needs to be restructured is R7.3 billion. R2.9 billion of the R7.3 billion is First Priority Senior Secured Notes that Cell C issued and were publicly listed.

This is a classic example of "if you owe the bank R1 that's your problem. If you owe the bank R7.3bn like Cell C, it becomes the bank's problem. Banks are willing to restructure debt facilities when you owe them this much.

For the six month period ended 30 November 2021, Cell C’s total liabilities were R21.4 billion against total assets of R8.2 billion, giving Cell C a net negative asset of R13.7bn.

Late in 2021, Blue Label concluded a term sheet for an airtime purchase transaction with Investec Bank, Rand Merchant Bank and other financiers, the proceeds of which are intended to be utilised for the recapitalisation of Cell C.

Who is Blue Label? Blue Label is a mobile technology company that specialises in prepaid products. Through its subsidiary The Prepaid Company, Blue Label is the leading distributor of prepaid products for all the major SA network operators.

Blue Label Telecoms acquired 45% of the issued share capital of Cell C for R5.5bn in 2017 and impaired that investment to nil in 2019. The investment was still nil as at 31 May 2020 and 2021.

It was reported that Blue Label was in talks with Rand Merchant Bank and Investec to provide Cell C with about R4bn in fresh capital in a recapitalisation plan. It was further reported that as part of Cell C’s recapitalisation plan, Deloitte acted as Cell C’s financial advisor and PwC acted as an operational restructuring advisor. An investment committee advising on the recapitalisation was chaired by former Investec CEO Stephen Koseff.

On 4 August 2020, Cell C defaulted on the payment of capital on its $184m (R2.7bn) note which was due on 2 August 2020, as well as interest and capital repayments related 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 were due in January and July 2020. The public saw this default as a sign that Cell C’s death was nigh.

Cell C once launched something called Black in 2017 which was meant to compete with Netflix and Showmax. Cell C spent R1.5 billion on the Black platform. 2 years after the launch, the service was shut down.

Telkom tried buying Cell C twice.

The first time was in 2017 but Cell C opted for Blue Label Telecoms through its subsidiary, The Prepaid Company that acquired 45% of Cell C for R5.5bn.

The second time around was in 2019, but no agreement could be reached. The reports were that Telkom had offered R1 (P.S Cell C was valued at zero in the books of its biggest shareholder Blue Label), plus taking on Cell C’s debt pile. This would've put serious strain on Telkom’s balance sheet. At the time, Cell C’s debt was at around R8.2bn. Telkom had a stated target of a net debt to EBITDA ratio of 1.5 times and the 2019 deal would've caused Telkom to breach that target.

The combined entity's (if the 2019 deal had gone through) net debt would be in the region of R24 billion and would've had an annual EBITDA of nearly R15 billion in 2019/2020 which would've pushed Telkom’s net debt to EBITDA ratio to 1.6x. This is higher than the target of 1.5x.

Back to Cell C, Blue Label and the debt pile. In 2019, Blue Label tried bringing in the reclusive billionaire, Jonathan Beare to take a minority stake in Cell C in order to help Cell C. In their own words, "with Buffet support the Cell C balance sheet will be bolstered..."

Cell C has rented out some parts of its famous Midrand offices. The Cell C campus in Midrand was developed by Atterbury who later sold it to the Attacq Property Fund. Cell C took occupation of its campus at the end of 2013 on a 15-year lease.

Cell C has really battled with its huge debt pile and this recapitalisation is an attempt to stabilise the balance sheet. Now here's how the recapitalisation plan will work. The Prepaid Company (TPCN) is at the centre of this revival effort.

TPCN, subsidiary of Blue Label will loan Cell C money so that it can make a compromise offer to its secured lenders up to a maximum amount of R1.46bn. R1.46bn will be provided by TPCN to Cell C in the form of a secured loan. Cell C will use the R1.46bn to settle the claims of secured lenders by paying an amount of 20c to the R1. This basically means that each lender will get only 20c from every R1 it gave Cell C.

Certain secured lenders have indicated that they wish to remain invested in Cell C by converting their debt into equity. These secured lenders will be entitled to loan an amount equal to the 20c received, back to Cell C under a new loan arrangement. All shareholders of Cell C will dilute proportionately to enable the issuance of these ordinary shares to the participating lenders.

CEC (a wholly owned subsidiary of TPC) will defer R1.1bn owed by Cell C to it. Is Blue Label willing to assist Cell C with its working capital requirements? Yes, TPC shall do the following;

1. purchase Cell C pre-paid airtime for a purchase price of R1.2 billion and
2. purchase, by way of four further quarterly payments of R300 million additional pre-paid airtime, with each such quarterly payment payable at the beginning of each calendar quarter.

It will be interesting to see if lenders will be willing to accept the 80% haircut and which lenders will convert the debt/s due to them into Cell C’s equity.

Cell C’s current shareholding is;

• Blue Label Telecoms - 45%,
• Net1 UEPS Technologies - 15%
• 3C Telecommunications - 30% (in turn held as 29.4% by the Employee Believe Trust, 45.6% by Oger Telecoms and 25% by a BEE group, CellSAf)
• Cell C Management and Staff - 10%.

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