S&P downgrades Cell C due to its precarious financial position

Picture: Thapelo Morebudi
Picture: Thapelo Morebudi

S&P Global Ratings has downgraded Cell C’s debt profile because of the mobile operator's deteriorating liquidity position and rising risks that it will not be able to refinance maturing debts.

The ratings agency lowered Cell C’s issuer credit rating to CCC- from CCC+, placing it deeper in “junk” territory. The company's capital structure was “unsustainable”, it said.

The network operator’s poor credit rating means it faces steep interest costs.

“Cell C faces considerable short-term liquidity and refinancing risks, with R8.8bn of its R9bn reported debt maturing within the next 18 months, and still-negative free cash flow,” S&P Global Ratings said.

The network operator, which had cash on hand of about R500m at last count, must settle a R1.4bn airtime-backed facility due in July 2019; about R3.8bn of bank funding due in January and July 2020; a $184m (R2.6bn) senior secured bond due August 2020; and a rolling R900m handset financing facility.

In February, Cell C’s largest investor, Blue Label Telecoms, said a consortium of investors, led by billionaire businessman Jonathan Beare, had agreed to take a minority stake in the heavily indebted mobile operator to bolster its balance sheet. The deal is yet to be finalised.

S&P Global Ratings said the conditions, timing, and outcome of the deal remained uncertain. Cell C’s rating could change in coming months depending on its negotiations with the consortium, the agency said.

“In our view, Cell C would face a near-term liquidity crisis if it was unable to refinance upcoming maturities and secure new financing,” S&P Global Ratings said of its “downside scenario”.

“This would increase the likelihood that Cell C might engage in a distressed exchange or restructuring discussions, which would likely result in us lowering the ratings further.”

Cell C’s financial woes have weighed heavily on Blue Label’s share price. The group’s stock was at R3.67 on Wednesday morning, versus a high of R18.95 in August 2017.



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