Cell C seeking to cut its debt by 73 %

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Published Jun 21, 2017

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Johannesburg - Cell C is seeking to cut its debt by 73 percent as part of a

deal that will help South

Africa’s third-largest mobile-phone operator

sell a stake to Blue Label Telecoms while retaining its operating license,

according to two people familiar with the matter.

The proposed transaction will see Cell C split about 9

billion rand ($688 million) of borrowings into three special purpose vehicles,

said the people, who asked not to be identified because the talks are private.

Alongside stake sales to Blue Label and payment

services provider Net1 UEPS Technologies, the plan will cut the overall

debt to 6 billion rand from about 22 billion rand, they said.

The special purpose vehicles will take on debt held by South Africa’s

Nedbank Group, a group of Chinese lenders, and a 400 million euro ($446

million) bond issued by Cell C that matures in July 2018, the people said. In

exchange, the vehicles will control a combined 30 percent stake in Cell C.

Read also:  BlueLabel deal with Cell C debtors 

The proposal is the latest attempt by Cell C to push through

the sale of a 45 percent shareholding to Johannesburg-based Blue Label for 5.5

billion rand, a deal agreed in October after almost a year of talks.

It’s being cast as a debt refinancing rather than a takeover

as South African regulators may demand a license reapplication in the event of

a change of ownership, the people said. CellSAf, which is black controlled and

owns 25 percent of Cell C, argues that such a transaction would unfairly dilute

its shareholding and goes against South

African initiatives to distribute wealth to people discriminated

against during apartheid. Blue Label shares rose 0.2 percent to 15.14 rand at

10.08 a.m. in Johannesburg

on Wednesday. The shares have fallen by almost 17 percent since the start of

the year.

Ownership Structure

One of the SPVs will be held by CellSAf, according to

the proposal. However, the shareholder hasn’t been officially informed and

hasn’t authorized the creation of any SPVs to hold shares in Cell C, one of the

people said.

Another SPV will be controlled by 3C, the Oger Telecom controlled

entity that previously controlled Cell C and wants to exit the company. An

employee ownership scheme will own the third, according to the terms of the

proposal.

“We have not announced any detail regarding the SPV

structure,” Michael Campbell, Blue Label’s head of investor relations, said in

an emailed response to questions. “Further particulars will be included in the

circular to be released later in June.” Cell C declined to comment.

Some of the Cell C debt will be owed by the SPVs and will be

secured by shares in Cell-C, the Net1 board said in emailed response to

questions, without providing further details.

Under the new terms of the transaction, Net1 will take a 15

percent stake in Cell C in exchange for taking over 2 billion rand of debt.

Other major Cell C shareholders will include the company’s management, led by

Chief Executive Officer Jose Dos Santos, according to a circular sent to Blue

Label shareholders. The CEO didn’t respond to phone calls seeking comment.

In February, Cell C rejected an attempt by Pretoria-based

Telkom SA SOC Ltd. to gatecrash the talks with a $1 billion offer. A spokeswoman for Nedbank declined to comment. A phone call

to Oger’s head office wasn’t answered.

 BLOOMBERG 

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