JSE-listed Blue Label Telecoms has once again buckled under the weight of its investment in Cell C, with its shares shedding more than 13percent, after the mobile operator defaulted on the payment of interest on a $184 million (R2.67billion) loan.
The share price slipped to R2.75 at 12.26pm, closing at the same price.
Blue Label yesterday flagged that Cell C was also facing a possibility of defaulting on interests and capital payments related to bilateral loan facilities with Nedbank, China Development Bank Corporation, the Development Bank of Southern Africa and Industrial and Commercial Bank of China, due by the end of this month.
Blue Label Telecoms, which bought the 45percent stake in Cell C for R5.5bn in 2017, has been heavily exposed to losses in Cell C, prompting it to write down the value of its investment in Cell C to zero.
The default on the payment, which was due in December last year, is the latest blow to Cell C, South Africa’s third-biggest mobile operator, which has been grappling with a liquidity crunch.
Cell C said in a statement yesterday that the suspension of payments was in line with the group's wider initiatives to improve liquidity and to restructure the company's balance sheet.
“Cell C continues to work proactively with all stakeholders to improve its liquidity, debt profile and long-term competitiveness as part of its turnaround strategy,” said the company.
It said the S&P Global status on certain loan facilities and senior secured bonds remained unchanged at D.
Analysts said that the default was the latest indication of the magnitude of Cell C’s problems.
Ofentse Dazela, a director for pricing research at Johannesburg-based Africa Analysis, said yesterday that Cell C’s repayment default came as little surprise given that it had been struggling to address its R9 billion debt burden.
“The default is the latest indication that the company is in tatters,” Dazela said, citing that Cell C was relying on its roaming agreement with MTN to keep afloat.
In November, Cell C said that it had entered into an extended roaming agreement with MTN, to better control its capital expenditure and operating costs.
“What will happen if Cell C cannot service costs of the roaming agreement with MTN? The future is ominous and Cell C’s image has been tainted with subscriber confidence waning,” said Dazela.
“I do not understand why they did not seriously consider Telkom's bid,” said Dazela.
Last month, Cell C rejected the takeover offer from telecoms company Telkom.
Peter Takaendesa, the head of equities at Mergence Investment Managers, also said the announcement was in line with his expectations, because rating agencies downgraded Cell C to a default rating in August 2019.
“There are no easy short-term solutions to Cell C’s financial problems and the key question now is what terms will lenders put on the table if liquidation is not an option.
“It is a very difficult position for any company to find itself in as all survival options become very costly,” Takaendesa said. He said while the long-proposed recapitalisation from the Buffet Consortium was likely to be costly to existing stakeholders, this was the only practical near-term solution to the company's financial problems.
“Alternatively they could re-open failed talks with Telkom, but unfortunately the terms of the transaction will likely be much less attractive next round,” Takaendesa said.