Did Blue Label Try to Hide Cell C’s Liquidity Concerns to Investors?

“We believe the expectation by S&P on Cell C to secure financing facilities in such a short timeframe post the recapitalisation was unrealistic,” says Cell C.

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Cell C Head Office
Cell C Head Office (Photo Credit: Global Roofing Solutions)

In a perfect world, investors, board members, and customers would have full confidence in companies’ financial figures. Through the financial statements and JSE disclosures, we could make wise decisions about whether to invest in a company.

JSE-listed Blue Label, which owns 45% of the issued share capital of Cell C, has decided not to disclose to the market a Standard & Poor’s (S&P) Global Ratings downgrade of the mobile phone operator. For more read: S&P Downgrades Cell C on Liquidity Concerns

Blue Label should have informed investors about this downgrade through the JSE.

But it didn’t of course – probably because it was not price sensitive.

Asked why Blue Label did not disclose Cell C’s downgrade to the market and whether the company was not in contravention of the JSE listing requirements, Nicola White, Blue Label’s head of investor and media relations, said the downgrade was released publicly on Bloomberg on 7 May.

“It has had no effect whatsoever on Cell C’s refinancing negotiations which are due to be concluded shortly. There is therefore no price sensitivity,” she added via an emailed response.

Blue Label, which is valued at R10.8 billion, has seen its share price dropped by 17.3% in the past 90 days and by 11.3% in the past 30 days on the JSE.

The drop in the share price even prompted @JSE_Dog to ask on Monday if this was not related to CellSAf:


S&P on May 7 downgraded the mobile phone company to ‘CCC+’ from ‘B-‘ and lowering its issue ratings on its senior secured notes to ‘B-‘ from ‘B’.

The ratings firm also revised its outlook on the company’s ratings to negative, meaning it could downgrade it in the medium term.

Is Blue Label in Contravention of JSE Listing Requirements?

CellSAf said on Wednesday in a statement that Cell C is not performing as well as Blue Label and Net 1 had expected it to or are telling the markets it is.

“Cell C has been very coy about informing the markets of this situation and so has its new parent company, Blue Label, which, in our view, may constitute a contravention of Blue Label’s listing requirements,” says Dr Nomonde Mabuya, CellSAf’s Company Secretary on behalf of CellSAf’s board.

Prior to this, Cell C had told the markets, in April 2018, that it had “ditched” ratings agency Moody’s after it claimed to have “slashed” its outstanding debt, “thanks to a recapitalisation deal.”

Moody’s had, at the time of the transaction, on 07 August 2017, declared Cell C’s capital restructuring a distressed exchange, but however affirmed its Caa1 corporate family rating (CFR).

Cell C’s liquidity uses include expected capex of around R3.7 billion, on a reported basis, in both 2018 and 2019. “We also include in our calculations the maturity of a R740 million capex financing facility, provided by Blue Label Telecoms, which is repayable on July 31, 2018,” a statement by S&P said.

Cell C is also in a process of raising new capex financing of R2.25 billion for use within the next 24 months. The company is also raising new general banking facilities of R1 billion and restructuring existing term debt of R6 billion.

“We think this refinancing, upon completion, will improve Cell C’s financing mix and maturity profile, address its medium-term liquidity concerns, and support its investment program, benefiting its cash flow generation,” S&P said in a statement.

“We could lower the rating if Cell C is unable to implement any of its short-term liquidity contingency measures, or is unable to secure sufficient liquidity sources in the near term, such that we anticipate additional funding shortfalls in 2019.”

While, to date, Cell C has secured short-term trade finance facilities, including handset financing from Blue Label subsidiary Comms Equipment Company of about R900 million and a R1.34 billion, interest bearing Capex facility from Blue Label itself, CellSAf said Cell C has failed to secure substantial new liquidity sources with tenors exceeding 12 months, prompting S&P to reassess its rating.

Cell C respond

Cell C has noted rating agency S&P’s rating and outlook of the company and acknowledges its evaluation.

Cell C Head Office
Cell C Head Office (Photo Credit: archibuild.businesscatalyst.com)

“It has only been ten months since the recapitalisation of Cell C and since then the performance of the company has been in line with expectations set by management and shareholders,” Cell C said in an emailed response.

The mobile phone operator added that potential funders have indicated they would only consider engaging with it following their analysis of its 2017 annual results, which was only announced in February this year.

“We believe the expectation by S&P on Cell C to secure financing facilities in such a short timeframe post the recapitalisation was unrealistic.”

Notwithstanding this, Cell C said it has made significant progress and has put measures in place to ensure the stability and sustainability of the business.

“The company is also well advanced in arranging long-term facilities to refinance existing debt and raising new CAPEX financing for utilisation in the next 24 months. These debt facilities will improve Cell C’s capital structure, debt maturity profile and funding mix and will fundamentally address liquidity concerns ahead of its intended listing in the medium to long term,” Cell C said.

Cell C added that it has also in the interim secured shorter term financing facilities to manage liquidity while the company concludes the new debt package.

“The downgrade in no way affects the existing capital structure of Cell C, which remains in place. We are pleased that S&P has acknowledged the positive performance of the business in its outlook review.”

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