JSE-listed Blue Label Telecoms has committed to settle Cell C’s debt amounting to R175 million by December 2026.
This emerged when Blue Label, which is the mobile operator’s majority shareholder, today announced its financial results for the six months ended 30 November 2024.
The company is looking to service the Cell C debt through its subsidiary, The Prepaid Company (TPC).
Blue Label has a non-controlling 49.5% stake in Cell C, and is looking to get an additional 4.04% stake via TPC in order to get control of South Africa’s fourth-biggest mobile operator.
In a statement, Blue Label says in 2022, a debt owed by Cell C to a lessor was transferred to a newly-established special purpose vehicle (SPV5) in exchange for a 10% shareholding in Cell C, which remains SPV5’s sole asset.
According to the firm, Blue Label issued a guarantee in favour of the lessor for the repayment of this debt, while TPC committed to providing R275 million in funding to SPV5, in exchange for a claim of R699 million in SPV5, enabling it to meet its repayment obligations.
It says the debt will be settled in tranches over the period from 31 December 2024 to 31 December 2026.
On 31 December 2024, TPC advanced the first tranche of funding, amounting to R100 million, and was recognised as part of the investment cost, says Blue Label, adding that the remaining funding commitments are scheduled as follows:
- R100 million on 31 December 2025.
- R50 million on 31 December 2026.
- An additional R25 million on 31 December 2026, contingent upon the occurrence of certain liquidity events.
Additional economic interest
Blue Label explains that SPV5 is required to repay TPC for the amounts advanced from any future sale of shares, or from dividends earned thereon, along with an additional R424 million plus 50% of the fair value of its 10% shareholding in Cell C, to the extent that the proceeds exceed R699 million.
Since SPV5’s only asset is its shareholding in Cell C, it notes, the repayment will be dependent on the disposal of these shares and/or dividends earned thereon.
As a result, the majority shareholder says as of 31 December 2024, TPC has effectively acquired an additional 10% economic interest in Cell C, capped at the repayment amount.
It points out that this investment will be equity accounted, subject to the cap, alongside TPC’s existing 63.19% economic interest in Cell C.
According to the company, SPV5 is precluded from selling the Cell C shares without TPC’s consent, but TPC has no rights with respect to directing the voting rights attached to the shares.
“In the event of default, TPC would be able to acquire the 10% shareholding in Cell C in settlement of its loan, but only with the prior approval of the Competition Commission of South Africa and ICASA [Independent Communications Authority of South Africa], as such acquisition would result in TPC acquiring control of Cell C,” says Blue Label.
“TPC’s loan commitment to SPV5, which has been accounted for as a derivative liability (carrying a value of R7 million as of 30 November 2024 and 31 December 2024, respectively), was derecognised on 31 December 2024 and reclassified as part of the acquisition cost of the additional investment in Cell C.”
Blue Label adds that the present value of the remaining funding obligations to SPV5, amounting to R148 million as of 31 December 2024, was recognised as part of the investment cost, with a corresponding liability recorded to SPV5.
“Due to the existence of previously unrecognised equity-accounted losses associated with the Cell C investment, the total increase in the cost of the investment of R241 million was recognised as a loss in the group’s income statement under ‘share of losses from associates’ on 31 December 2024, thereby reducing the balance of previously unrecognised equity-accounted losses.”
The firm adds that in December, TPC entered into a general banking facility agreement with Rand Merchant Bank for R311 million, scheduled to mature on 28 February. The facility carries an interest rate of prime plus 1%.
It states that TPC is in the final stages of securing an extension prior to the maturity date, which will extend the facility for an additional 18 months, with repayments in equal monthly instalments commencing on 31 March.
Revenue growth
Meanwhile, Blue Label’s revenue amounted to R7.2 billion. “As only the gross profit earned on ‘PINless top-ups’, prepaid electricity, ticketing and universal vouchers is recognised as revenue, on imputing the gross revenue generated from these sources, the effective growth in revenue equated to R3.5 billion (8%), resulting in a total revenue of R47.4 billion compared to the prior period of R43.8 billion,” it says.
Gross profit increased by R28 million (2%) from R1.598 billion to R1.626 billion, corresponding to an increase in margins from 21.08% to 22.44%.
It notes that this increase in margins can be partially attributed to the growth in “PINless top-ups”, prepaid electricity, ticketing and universal vouchers, where only the gross profit earned thereon is recognised as revenue.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) decreased by R44 million (6%), from R697 million to R653 million, while core headline earnings recorded a marginal increase of R5 million from R419 million to R424 million.
The firm explains that the decline in EBITDA and the modest growth in core headline earnings were primarily driven by a reduction in the Comm Equipment Company (CEC) subscriber base, a lower average revenue per user and increased finance costs associated with the sale of a portion of the CEC handset receivable book.
The proceeds from the sale were transferred from CEC to TPC and ultimately to Cell C through the acquisition of airtime.
Earnings per share for the current and prior periods were 43.98 cents and 45.67 cents, respectively. Headline earnings per share for the same periods were 46.01 cents and 45.91 cents, respectively.
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