The group, which owns 45percent of Cell C, closed 9.66percent lower yesterday at R4.58 a share on S&P’s technical research report, which underscored the need for Cell C to move faster with its recapitalisation to bring the business back to sustainability.
Blue Label said in February that the Buffet Consortium, backed by billionaire Jonathan Beare, would become a minority shareholder in Cell C to improve its liquidity and competitiveness. Yesterday, a Blue Label spokesperson said the company would update the market on the Buffet Consortium deal shortly.
“Announcements regarding further progress on the Buffet Consortium deal and the further ‘income generating’ deal are imminent,” said the spokesperson. Blue Label became Cell C’s majority shareholder through a R5.5billion investment to recapitalise the company in 2016.
However, Cell C’s heavily-geared balance sheet is one of Blue Label’s biggest risks, said analysts.
Peter Takaendesa, a portfolio manager at Mergence Investment Management, said the Blue Label share price had fallen on market jitters following the S&P note.
“The market is worried that Cell C’s losses will take Blue Label with them. The Blue Label distribution business has good fundamentals. However, Cell C requires a lot of funding from Blue Label. Any further downgrade of Cell C will makes it difficult going forward. In a month or two Cell C should know more about the Buffet Consortium,” Takaendesa said. S&P informed the market on Wednesday of Cell C’s downgrade to selective default after the company renegotiated the terms of its debt with some lenders.
Cell C said in response to the S&P note that it “was actively pursuing an appropriate liquidity platform with a view to implementing a comprehensive recapitalisation and other measures, with the support of its financial lenders and its shareholders”.
It said it had renegotiated the terms of certain aspects of its debt with the backing of the lenders.
Although Cell C has fulfilled its debt obligations and as such no conventional event of default has been triggered, S&P considered such reterming of the repayment profile as "a technical default in terms of its rating criteria,” it said.
Mobile operator Blue Label was founded by brothers Brett and Mark Levy. They said in February that Cell C’s net loss had amounted to R634million in the half year to November 2018.
Jose Dos Santos, who was Cell C chief executive since 2014, resigned in February to become a consultant to Cell C chairperson Kuben Pillay.
Cell C’s new chief executive and former chief operating officer, Douglas Craigie Stevenson, said the company was “pursuing ways to leverage our existing roaming agreement, as well as look at network synergy and consolidation to ensure that Cell C remains a competitive player with improved network access and quality.”