Cell C, which recently rejected a takeover bid from Telkom, has defaulted on almost R3bn debt, sending shares of its largest shareholder, Blue Label Telecoms plunging more than 13% on Tuesday.
The failure to pay interest payment on its $184m (R274bn) bond interest pay, as well as loans and interest to lenders, including Nedbank and the Development Bank of Southern Africa, will likely pile pressure on the board to speed up efforts to shore up the company's finances and improve its liquidity.
Cell C, which labours under R8.9bn debt pile, is in the middle of a turnaround strategy that include bringing a group of investors led by the property magnate Jonathan Beare to inject cash into the business in exchange for shares and scaling back on capital expenditure and cutting costs after clinching a roaming deal with larger rival MTN in November last year.
“We continue to engage with all stakeholders throughout this process and believe we have made good progress,” said Cell C CEO, Douglas Craigie Stevenson said.
Shares in Blue Label Telecoms, which owns 45% stake in the Cell C following a 2017 deal aimed at bolstering the mobile operator’s finances, tanked 13.52% on Tuesday, their worst one-day fall in six months.
The default comes barely two months after Cell C’s board rejected a takeover bid from Telkom in a deal, whose financial details were not disclosed, that analysts and industry players said would have created a bigger, financially stable third player to challenge Vodacom's and MTN's stranglehold on SA’s maturing mobile phone market.
The deal would have created a provider with about 27.5-million subscribers.
None of the bilateral loan facilities have been accelerated as noteholders were aware and support that Cell C is committed to resolving the situation, Blue Label Telecoms said in a statement. The payments were due in December and January.
“This likely indicates that the bond holders are waiting for the capitalisation deal, which they probably view that as the best way of getting their capital, or the majority of their capital, back," said AlphaWealth's fund manager Keith McLachlan.
Steve Ambrose of Strategy Worx shared McLachlan's sentiment, saying lenders were likely onboard with Cell C's restructuring strategy.
Operationally, Ambrose said, Cell C was in a good position to take care of its day to day costs but not its long term debts.
Cell C’s declining fortunes have resulted in both Blue Label and Net1 writing their combined R7.5bn investment in the operator down to nil. The company has struggled to make consistent profifts since it became SA third mobile operator in 2001.
With Karl Gernetzky
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