Cell C's financial woes have weighed on major shareholder Blue Label. Picture: THAPELO MOREBUDI
Cell C's financial woes have weighed on major shareholder Blue Label. Picture: THAPELO MOREBUDI

Shares in Cell C's biggest shareholder fell the most in three months on Thursday after S&P Global Ratings downgraded the mobile network operator's debt for the second time in less than three months — this time to reflect that a default is now “a virtual certainty”.

This comes after SA's third mobile operator delayed some repayments on its R1.4bn airtime-backed facility, a move the US ratings agency views as “a distressed exchange and tantamount to selective default, given Cell C’s weak liquidity position”.

Blue Label Telecoms' shares fell 9.27% to close at R4.60. Since January, the stock has dropped 14.97%.

Cell C’s financial woes have weighed heavily on the pre-paid vouchers distributor's share price, despite a partial recovery since the start of June. The stock was last traded at R4.70, up from R3.60 at the end of May, but well below a high of R18.95 in August 2017. 

In April, S&P lowered Cell C’s credit rating to CCC- from CCC+, placing it deeper into “junk” territory. The company’s capital structure was “unsustainable”, it said at the time.

The network operator, which had cash on hand of about R500m at last count, was in a precarious position as it would have to settle the airtime-backed facility due in July, along with hefty repayments on bank funding, bonds and a handset-financing facility due in 2020.

Blue Label said in February that a consortium of investors, led by billionaire businessman Jonathan Beare, had agreed to take a minority stake in the heavily indebted mobile operator to help its financial position. The deal is yet to be finalised.

In its latest report on Cell C, S&P lowered its rating of the network operator to “SD”, or “selective default”,  and downgraded the company’s senior secured debt to “CC” from “CCC”.

The SD rating means S&P considers Cell C to have defaulted on its financial obligations, while the CC debt rating shows that a borrower “is currently highly vulnerable”, according to the agency’s website, which notes, “the CC rating is used when a default has not yet occurred but S&P expects default to be a virtual certainty, regardless of the anticipated time to default.”

Because the schedule of agreed repayments by Cell C had slowed, S&P said it believes lenders “will receive less value than the promise of the original agreement”.

Cell C said in a statement that it was pursuing “an appropriate liquidity platform with a view to implementing a comprehensive recapitalisation, and other measures”, with the support of its lenders and shareholders. 

Referring to the airtime-backed facility, the company said it had renegotiated the terms of some of its debt, with the backing of those lenders. As such, it said it had fulfilled its debt obligations. 

Cell C is “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”, said new CEO Douglas Craigie Stevenson.

Blue Label said in response to questions it was not able to comment on Cell C’s financial position or outlook, but further updates to the operator’s recapitalisation transactions "are imminent".