The country’s communications watchdog is seeking legal advice in response to Cell C’s recapitalisation that is in ‘violation’ of its licence conditions.
The country’s third-biggest mobile phone operator recently announced its restructuring involving Net 1 and Blue Label Telecoms.
On 07 August 2017, Cell C management, Net 1 and Blue Label announced the conclusion and “approval” of the recapitalisation transaction.
Declaring that the deal was complete, Cell also announced last week Monday that Kuben Pillay and Larry Nestadt have been appointed to the board of Cell C as chairperson and deputy chairperson respectively.
In a statement on Wednesday night, ICASA (Independent Communications Authority of South Africa), said it is seeking legal advice.
“The Authority is engaging Cell C to seek clarity on this apparent non-compliance with the legislative provisions. In addition, the Authority is also taking external legal advice on the matter, including on appropriate enforcement actions it can take to ensure compliance,” said spokesperson Paseka Maleka.
The communications watchdog said it has considered the notification by Cell C regarding the change of licensee information i.e. change of shareholding.
It added that the preliminary view is that the Cell C recapitalisation transaction – on the face of it – triggers the provisions of Section 13 of the Electronic Communications Act of 2015 and ought to have been filed as an application for change of control of the licensee.
Last week, Cell C’s empowerment partner CellSAf warned that the recapitalisation of the mobile phone is not a done deal. For more read: Cell C Recapitalisation is Not a Done Deal, warns BEE Partner CellSAf
CellSAf declared that the recapitalisation of the mobile phone operator amounts to a blatant attempt at corporate capture, and is likely to collapse under regulatory scrutiny.
“In fact, the proposed restructuring is non-compliant and faces a number of legal and regulatory hurdles. Faced with regulatory and public scrutiny, the true motives and beneficiaries of the proposed transaction will be revealed,” Dr. Nomonde Mabuya, CellSAf’s company secretary said on behalf of the board of the empowerment firm.
Compromised, from start to finish
CellSAf claimed that the proposed transaction is compromised on multiple levels:
- It does not comply with various provisions of the Companies Act, the Electronic Communications Act or the Competition Act. The sponsors of the transaction have not complied with the mandated regulatory processes relating to changes in control of a License, and they are therefore in breach of the specific requirements, regulated by the Independent Communications Authority of South Africa (ICASA).
- The sponsors have not complied with the requirements relating to a merger of this nature, and potentially face an investigation by the Competition Commission relating, inter alia, to the prior implementation of a large merger.
- The transaction requires approval by the Financial Surveillance Board (FSB) of the South African Reserve Bank (SARB) and Cell C is currently facing scrutiny by SARS, relating to VAT, thin capitalisation and transfer pricing. This transaction will further impact the audit of Cell C’s affairs, underway since June 2017.
- The processes undertaken in negotiating and announcing the transaction appear to flout the rules of several stock and bond exchanges, potentially exposing the participants to regulatory action both in South Africa and elsewhere.
- The deal falls foul of broad imperatives and the anti-fronting prescriptions of the South African Broad-Based Black Economic Empowerment (B-BBEE) Act.
- The deal was negotiated behind closed doors and appears motivated purely by the self-interest of the participants. The process illegally excluded CellSAf from decision-making, involved multiple undeclared conflicts of interest; and breaches of fiduciary obligations; and, was approved by improperly-constituted Boards of Directors, relying on irregular resolutions. CellSAf has launched a High Court Application to have the resolutions and agreements set aside. The matter will come before the Court in the near future.
“By continuing to misrepresent the status of the transaction to the market in order to mask their own, reckless and negligent conduct, Cell C management, Net 1 and Blue Label are exposing themselves and their shareholders to significant risks and costs, as well as exposing the entire sector to unnecessary and potentially damaging instability,” said Dr. Mabuya.
