Cell C gets ratings boost over acquisition plans

2015-12-22 18:30
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Cell C may be sold as the majority shareholder looks to offload its shares. (Duncan Alfreds, Fin24)


Cape Town – Cell C received a ratings boost on Tuesday, following reports that Blue Label Telecoms [JSE:BLU] plans to acquire a 35% stake in South African telecommunications business.

Standard & Poor's (S&P) Ratings Services said it placed its B- long-term rating on Cell C on CreditWatch with positive implications.

It also placed its B- issue rating on the company's senior secured debt on CreditWatch positive. The recovery rating remains unchanged at '3', reflecting our expectation of recovery in the lower half of the 50%-70% range, in case of default, pending further detail on the recapitalization.

“The CreditWatch placement is based on the potential debt reduction that could occur if Blue Label Telecoms and Cell C staff acquire 35% and 30% stakes, respectively, in Cell C,” it said.

Oger Telecom, which would retain the remaining 35% stake through 3C Telecommunications, aims to reduce Cell C's debt to between R6bn to R8bn from its current level of about R17bn. This could result in Cell C's Standard & Poor's-adjusted debt to EBITDA ratio improving to less than four times, it said.

“In such a case, we could raise the rating by one to two notches as result of its improved financial profile if we continue to expect adequate liquidity and operational performance in line with our current forecast, and if the company's new owners commit to a financial policy of sustainably maintaining the improved capital structure.

Currently, 90% of Cell C's debt is in US dollars and euros, said S&P. “A component of the proposed debt recapitalisation is to convert all debt into rand, which would reduce the currency risk on debt because Cell C sources all its revenues in rand.”

“The CreditWatch placement reflects our view that the potential ownership and recapitalisation will deleverage Cell C's balance sheet,” it said.

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