JSE-listed Blue Label Telecoms, which has lost a third of its value since January due to the dismal performance of its investment in the country’s third largest mobile operator Cell C, is selling off assets in an effort to pay off its debts.
The company, which is now worth less than what it paid for a 45% stake in the debt-laden operator in 2017, said on Wednesday it had agreed to sell 85% of its stake in subsidiary Blue Label Mobile for R450m to DNI, a SIM card distributor that is partly owned by Net 1, which holds a 15% stake in Cell C.
In addition, Blue Label said that its subsidiary, The Prepaid Company, had agreed to sell its interest in cellphones and tablets distributor 3G Mobile for R544m to DNI.
The rescue of Cell C has proved to be disastrous for Blue Label as the cellphone operator struggled with debt and failed to make inroads against bigger rivals MTN and Vodacom.
The company has been the subject of takeover speculation over the past two years, though analysts have noted that a merger with one of its two bigger rivals would likely be blocked by the country’s competition authorities. Talk of a merger with Telkom has also come to nothing yet.
With news of the sale coming after the close of the markets on Wednesday, shares in Blue Label ended the day 0.90% higher at R3.38, valuing it at R3.09bn.
The shares have dropped 37.5% since the end of December, wiping R1.8bn off its value.
It paid R5.5bn for its share of Cell C.
Blue Label said the move was to protect its core business of distributing prepaid airtime and electricity, and it would use
the proceeds to pay off debt resulting from purchases made in the last two years.
"The Blue Label board of directors have made a decision to deleverage the business in order to ensure a more robust and liquid balance sheet going forward," the company said.
Cell C’s fortunes have had a big effect on its shareholders with both Blue Label and Net1 having delayed the release of their results as the value
of their investment was still being ascertained.
Last week Blue Label said it had swung into a headline loss in the year to end-May, as it wrote down the value of its holding in Cell C.
Net1, which acquired its stake in Cell C for R2bn in 2017, said it believed that the fair value of its interest in Cell C at the end of June "is nil".
Cell C’s financial statements, also show that by the end of 2018 it owed about R8.7bn .
In August, S&P Global Ratings downgraded Cell C’s debt to D, or "default", its lowest possible junk rating. This came after the cellphone operator "failed to make interest payments on certain bilateral loan facilities".
The ratings agency said at the time that it believed there would be an increased likelihood of Cell C being unable to repay all or a substantial part of the obligations as they came due, unless it was able to restructure its debt and recapitalise its balance sheet.
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