South Africa’s Cell C completes a debt to equity swap

Mergers, Acquisitions and Financial Results

Shareholders of Cell C have slashed the company's debt by half, by converting a R6,4bn loan into equity, in a move that will improve the cellphone network provider's financial position and assist in raising funds to expand its network. Cell C, SA 's smallest network operator, has been burdened by interest-bearing debts that drain its cash each month, contributing to the company's failure to make a net profit. Cell C CE Lars Reichelt said yesterday that the move "is a sign of faith (in Cell C) by the shareholders and shows their commitment in the market". Cell C is 60% owned by Saudi Oger, 25% by empowerment investors CellSaf and 15% by Lanun Securities, another Saudi company. He said the recapitilisation has decreased Cell C's debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio from 9,5 times to 4,8 times . Cell C reported a 67% growth in Ebitda to R1,4bn for the year to December. "The debt to Ebitda ratio of 4,8 times gives us a better option for expanding the network. Our balance sheet will be more sound," said Reichelt. Revenue rose 14% to R9,9bn. Reichelt did not disclose the company's operating profit and net profit. He attributed the Ebitda growth to cost control measures implemented last year. These include reducing customer acquisition costs such as handset subsidies. Its customer base rose 8% to 6,9-million despite the implementation of the Regulation of Interception of Communications and Provision of Communication- Related Information Act, which resulted in a net loss of 3,8-million customers across all three network providers. The act requires MTN, Cell C and Vodacom to register all their customers effective from July last year. This resulted in fewer customers joining the networks as they are required to show their proof of residence and identity document when buying a SIM card. MTN has 16,424-million subscribers in SA, while Vodacom has 27,1-million. Reichelt said the industry was hard-hit by the implementation of the legislation. "For the first time ever, negative growth was seen in the six months following the implementation of this legislation. In similar market constellations the smaller players tend to suffer disproportionately more," Reichelt said. But Cell C grew its market share to 14,5% from 13,4%. This year, Cell C plans to spend R5,5bn in network expansion that includes building the high-speed mobile network 3G and also lease capacity in fibre-optic cables from Dark Fibre Africa and Neotel. This is an indication of Cell C's move into the high-end market, which it previously paid less attention to.