Cell C uses about R1bn of debt a year for its operations and will continue to do so for the foreseeable future, Cell C boss Jorge Mendes has told Business Day.
Over the years, Cell C’s relationship with debt has been at the centre of the mobile operator’s story and investment case. With the mobile operator gearing up for a possible JSE listing, market players are likely to want to know and understand how Cell C is using debt.
Blue Label, as the mobile provider’s largest shareholder, completed the long-awaited recapitalisation of the troubled mobile company in September 2022.
Since then, the group has tried often to fix the operator’s business, including poaching talent from rival firms, reducing capital expenditure, signing on new enterprise customers, refreshing Cell C’s brand and simplifying its operating structure.
The mobile network operator has struggled to make a profit since opening in 2001. It had been laden with long-term debt of R8.7bn, prompting Blue Label and Lesaka Technologies (formerly Net1), which previously had a 15% stake, to write down their combined R7.5bn investment to nil.
Four years after the writedown, Blue Label said in February 2023 it had revalued the Cell C investment on its books to R962.5m, showing evidence of some positive momentum in the mobile business.
At a media event earlier this month, Mendes said the cellphone provider now had a better relationship with bankers, with debt finance of R1bn being used each year in the normal course of trading.
“Our need for capital is really [about] trading capital,” Mendes said, adding that such spend is likely to “remain at just under a billion rand”.
Cell C famously chose to stop building and maintaining its own network under former CEO Douglas Craigie Stevenson in favour of a capital light model that sees the company paying its larger rivals Vodacom and MTN for use of their infrastructure.
Mendes said Cell C now spent its capex mainly on IT and technology systems.
The R1bn in annual debt finance would continue. It may drop in the years to come once we’ve done the big projects like billing systems,” Mendes said.
For SA’s operators another important use of finance is for buying stocks of mobile handsets and devices, which are offered to customers — usually at special rates — to increase usage on the network, as well as a tool to keep customers loyal.
“If you want to grow either postpaid or prepaid handset financing, that normally comes with a significant amount of debt required for devices,” Mendes said, adding, “we would like to be in a position where we have an off balance sheet structure for device financing”.
Cell C is partnering with mobile handset and accessory distributor DNI through its 3G Mobile and Evercomm businesses to source devices. DNI also services two other network operators, giving it leverage to negotiate lower prices with manufacturers.
Blue Label said last week it was considering spinning off Cell C as part of the group’s restructuring in a move that will see all four of SA’s largest telecom companies listing on the local bourse.
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