Picture: ISTOCK
Picture: ISTOCK

Cell C’s BEE partner, CellSAf, is on the warpath. The company, whose sole investment is the 25% it owns in SA’s third mobile network operator through holding company 3C Telecommunications, wants to block the proposed R7.5bn recapitalisation deal in which Net1 and Blue Label will acquire a combined 60% of Cell C.

If the proposed deal goes through in its current form, CellSAf will be diluted out of its holding, a prospect it seeks to prevent. The transaction is aimed at reducing Cell C’s huge debt.

CellSAf has already instituted legal action to stop the deal, saying it was not consulted.

It has been an investor in Cell C since inception, having started off with a 40% holding. The investment cost it "seed capital" of USD$98m, though this is disputed by Oger Telecom, the 75% shareholder in Cell C, which insists CellSAf has not contributed financially. The empowerment company, however, had to reduce its stake since it could not afford to stump up its portion in the numerous recapitalisation calls as Cell C gasped for survival.

But it did win an important concession: Oger agreed to exempt CellSAf from future funding obligations without dilution of its shareholding. This may have been largely because an empowerment holding is a condition of Cell C’s operating licence. Oger, a Saudi Arabia-based company controlled by the Hariri family of Lebanon, has since pumped billions into Cell C by way of loans and equity injections.

The transaction will cut down on Cell C’s debt, but empowerment partner says it was not consulted

If Cell C’s deal with Blue Label and Net1 goes ahead, Oger’s stake will be diluted to about a third and CellSAf’s to 7.5%. Both are invested through Cell C’s holding company, 3C Telecommunications. Selected executives will share about 5% of the business. It is not clear who will own the rest of it.

The CellSAf shareholding was meant to be a strategic investment that would help Cell C to net government deals, but many of those have gone to MTN and Vodacom. Oger has accused CellSAf of failing to deliver on this front and of not doing anything for the company.

Cell C insists that black investors, through the empowerment credentials of Net1 and Blue Label, among other things, will own a total of 40% after the transaction. CellSAf disputes this as Net1 does not have an empowerment partner, while Blue Label claims to have a 17% BEE shareholding at group level.

In any case, CellSAf feels entitled to compensation for its stake since it was vital to Cell C obtaining its licence in the first place.

It rejects the proposed deal, saying it does "nothing more than further enrich the super wealthy", according to one CellSAf shareholder. That it should suffer another heavy dilution and quietly hand the company over is grossly unfair, the shareholder says.

Like Oger, CellSAf has not received a cent in dividends and says it has steadily been deprived of any participation in the management and control of the company.

But the bad blood runs deeper. The proposed recapitalisation of Cell C has laid bare the tensions among the 30 small investors that make up CellSAf. Mistrust was fuelled by rumours that one of the shareholders tried to buy out some of CellSAf’s partners. This aborted deal valued the entire CellSAf at R1bn, which raised expectations that the business was worth far more. But the deal did not go through as the would-be acquirer was unable to raise capital.

Without protection from dilution, the CellSAf stake is worth nothing as Cell C’s liabilities far exceed its assets. "Blue Label is not trying to steal the business," says a source sympathetic to Cell C. "It wants Cell C to survive because [the market needs] competition."

CellSAf sought a "commercial solution" from Oger. There were talks of a R300m offer to CellSAF by Oger plus a small stake in the restructured Cell C. But no agreement was reached. Spokesman Nomonde Mabuya says Oger’s chairman rejected CellSAf’s overture in writing. And, she says, Oger accused CellSAf of "seeking an unwarranted and undeserved gain".

Nomonde Mabuya: Board can’t advise shareholders without audited financials
Nomonde Mabuya: Board can’t advise shareholders without audited financials

But CellSAf has its own problems. The company has not published audited financial reports in years. It has also not held any properly constituted annual shareholder meetings. A CellSAf investor says he has never seen any CellSAf audited reports.

In defence, Mabuya says CellSAf has never received independently verifiable financial information from either 3C or Cell C. The CellSAf board could not advise shareholders to agree to the Blue Label/Net1 deal without audited financials. It required those to apply its mind and do solvency and liquidity tests. This would help avoid giving reckless advice to shareholders, Mabuya says.

CellSAf shareholder and director Zwelakhe Mankazana says an AGM, as opposed to a general meeting of shareholders, can only be held if the company is presenting annual financial statements. CellSAf received the 3C annual financial statements for the years 2009-2015 only in April 2016, he says. It informed relevant authorities of this situation.

"An AGM will be held once the company has been able to scrutinise these and those of Cell C, and to compile credible financial statements of its own," says Mankazana.

CellSAf is now obliged to go the legal route to force Cell C and 3C to release full-year financial statements for 2016.

Whether CellSAf will be able to have its way remains to be seen. But Cell C, Blue Label and Net1 are determined to go ahead with their transaction, with or without CellSAf.

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