Another blow for Cell C as S&P downgrades its debt to ‘default’
Cell C failed to make interest payments in July
S&P Global Ratings on Wednesday downgraded Cell C's debt to “default” after the embattled mobile network operator failed to make interest payments in July.
“The downgrade follows Cell C's announcement on August 19, that it has failed to make approximately R194m in interest payments due July 2019 on certain bilateral loan facilities totaling 40% of its total debt at December 31, 2018,” the ratings agency said.
Cell C and its senior secured bonds are now rated at default (D). The company, which has struggled to make consistent profits since it became SA’s third mobile operator in 2001, is grappling with a hefty debt burden.
“We believe there is an increased likelihood that Cell C will be unable to repay all or substantially all of the obligations as they come due, unless it is able to restructure its debt and recapitalise its balance sheet,” said S&P.
Cell C said the suspension of interest payments in July is part of a wider initiative by the operator to improve liquidity and to restructure its 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 strategic roadmap,” the company said.
The operator said it is working to better control its capital expenditure and operating costs.
Cell C's declining fortunes have hit its largest shareholder, JSE-listed Blue Label Telecoms, sending its shares to their lowest close since listing in November 2007. On Thursday they closed 7.43% down at R2.74, bringing the company’s market capitalisation to R2.5bn, R3bn lower than the R5.5bn paid by the company for its 45% stake in SA’s third-largest mobile operator.
In June, S&P downgraded Cell C’s debt for the second time in less than three months to reflect that a default was “a virtual certainty”. This came after the network operator delayed some repayments on its R1.4bn airtime-backed facility.
A consortium of investors led by billionaire businessperson Jonathan Beare has agreed to take a minority stake in Cell C that will bolster the mobile operator’s balance sheet, but the deal has not been finalised.
Cell C CEO Douglas Craigie Stevenson said in a statement: “We are committed to simplifying the business model, right-sizing and optimising the business. We have engaged with S&P throughout this process and believe we are on the right track with the transactions currently being finalised.
Cell C hopes the expanded roaming agreement with MTN together with the recapitalisation transaction will assist its “path to sustainability”.
“An agreement will lay the groundwork for a broader national roaming agreement, supporting South Africa’s policy goals of avoiding network duplication. The network services provided will drive efficiencies in the delivery of services to its consumers by Cell C,” it said.