Cell C responds to reports, speculation

Johannesburg, 28 Jun 2000

The intended preferred bidder for the third cellular licence, Cell C, says various financial reports and analysis widely leaked to the media are a non-issue. But it may make an issue of them later.

At a press conference today, Cell C left the option of court action against a wide variety of companies and individuals open.

"There will be serious consequences for those who leak and use documents," said telecoms consultant Paul Doany, a key member of the Cell C bid. "We have not waived any rights."

Spokesman and Cell C director Zwelakhe Mankazana said the consortium could also go to court if it is not named as the winning bidder.

The last deadline set for the announcement of the preferred bidder was 30 June, but South African Telecommunications Regulatory Authority (SATRA) politics in the form of chairman Nape Maepa may mean a further delay. Cell C says the damage done by such delays cannot be recouped. "The market is finite and we are losing market share," Doany noted. "That is a loss that can never be recouped."

Cell C also responded to the Grant Thornton Kessel Feinstein report commissioned by SATRA and subsequently discarded. The report was to remain confidential but was leaked to bidders and the media. Both the Kessel Feinstein report and an earlier report by BDO Spencer Stuart found that should Cell C win the licence, it would be insolvent soon after starting operations. Cell C agrees, but amassed evidence from banks and accounting firms to differentiate between bankruptcy and factual insolvency.

"There is no reason a technically insolvent company cannot continue to operate when it has the backing of its bankers," KMPG partner John Saker told the conference. He said intangible assets not taken into account in the various reports include the licence itself, which he values at more than $200 million.

John Natorp, ABN Amro director of corporate finance, said the analysts made a mistake in not considering subordinated shareholder loans as equity and that the debt to equity ratio they found was incorrect. ABN conducted its own analysis of the Kessel Feinstein report, made available to it by Cell C, which in turn received it from a journalist.

American operator GTE, which will assume the name Verizon after its merger with Bell Atlantic is completed, also gave its support to the consortium. "We didn`t want to become involved in an operation that was going to go kaput," said project director Norm Ober.

It comes down to its financial backing, and that is impeccable, Cell C said. The company will be 60% owned by Saudi Oger, and senior VP Emad Baban said Oger will provide all the cash that is needed. "I wish to state categorically that Saudi Oger will stand behind Cell C and guarantee it the financial support needed for it to become a sustainably profitable business."

Baban said Saudi Oger has an annual turnover of $1.5 billion, access to more than a billion dollars in running credit and is owned by the Hariri family which has a net worth of several billion dollars.

"Saudi Oger has demonstrated its ability to meet the commitments that such capital-intensive projects demand, and will support the development of Cell C and its shareholders over an extended time," reads letters of endorsement from Citibank and the Saudi Investment Bank, among others.

The peak funding Cell C expects to require is between $600 million and $650 million.

Baban added that the "smear campaigns" conducted against Oger are sending a negative message to potential foreign investors, especially in the Middle East.

Cell C said all other bidders would also be technically insolvent for a period of four to five years. Doany was asked at the conference why both BDO and Kessel Feinstein would place emphasis on the Cell C insolvency. "Why did they do this? We don`t understand," he said.

Responses from other bidders are expected this week.