Mergers, Acquisitions and Financial Results

Cell C, which holds South Africa's third cellular license, will raise 625 million euros (R5 billion) in a bond issue that will be primarily used to service its existing debts. Known as a high-yield bond, the issue will take place in two forms: seven-year first priority senior secured notes and 10-year senior subordinated notes. The former will have a higher status on the financial markets and the holders will be paid out first.

International bank Citigroup Global Markets is to be the lead manager and will underwrite the issue, which will be placed mainly with UK and US investors. The bond issue will not be placed in this country.

Johnathan Newman, advisor to Cell C's CEO Talaat Lahman, says the main aim of the issue is to restructure the company's debt, including shareholder loans made to it.

“Last year we indicated we had reached our peak funding level of $1 billion (R6 billion) and this is a way in which we can restructure the debt,” he says.

Newman says Cell C will shortly embark on an international road show to international investors after which the rates to be paid out will be determined.

Cell C's bond issue has raised eyebrows within the South African corporate bond market community as the type of instrument used is not common for a local company.

One bond trader says: “This country does not have a bond of this type. A high-yield bond is used mainly by companies that do not have a credit rating from an organisation such as Standard & Poors.”

A corporate finance officer says depending on the strategy Cell C has up its sleeve, it is unusual because the common wisdom is that a company raises capital within the country it is operating.

“There is obviously a far deeper strategy in place. However, this could be an expensive way in which to pass its debt along to others. It could also mean that some of the shareholders want their loans repaid sooner rather than later. However, if it does work out it could be quite a groundbreaking bond issue for this country,” he says.

Newman says the issue is part of finding the most efficient manner in which to structure the company's debt, but it does not rule out other fund-raising possibilities such as a listing on an equity market.

Newman would not comment on whether any of the R5 billion raised would be used for operational expenditure.

Cell C holds the country's third cellular licence and according to its latest figures, had 2.2 million subscribers, which amounts to about 11% of the total cellphone users in the country.