S&P downgrades Cell C

By Damaria Senne, ITWeb senior journalist

Johannesburg, 10 Dec 2007

Cell C remains upbeat about improving its performance and prospects, in spite of the decision by international rating agency Standard & Poor`s (S&P) to lower its long-term corporate credit rating.

Last week, S&P announced its decision to lower Cell C`s corporate credit rating from B to B-minus. The downgrade follows Cell C`s lower than expected earnings before interest, taxes, depreciation and amortisation (EBITDA), the agency said.

S&P also lowered Cell C`s debt rating. The negative outlook reflects the potential for a further downgrade if S&P believes Cell C`s financial resources would not be enough to cover short-term obligations because of inadequate shareholder support or insufficient EDITDA growth, the agency says.

This is the second time S&P has downgraded Cell C`s credit rating this year. In June, S&P lowered Cell C`s rating from B-plus to B.

During the same period, Moody`s Investor Service also downgraded Cell C`s credit rating, stating the company would default on an $805 million (R5.7 billion) debt within the next year as it failed to generate enough cash to pay interest on the debt.

Unfortunate views

Cell C CEO Jeffrey Hedberg says S&P`s view on the company`s ability to grow into its capital structure is unfortunate, as Cell C continues to make significant progress.

Year-on-year EBITDA grew 47% and by 71% for the quarter to end-September, he says. "We`ve seen strong growth during the first nine months of the year.

"This trend continues and we look forward to sharing our full results with the market in April 2008," he says.

"Naturally, rating agencies need to apply independent standards to their assessments. However, cash flow is strong and we have the continued commitment of our major shareholder."

Performance update

Cell C says it connected 1.345 million prepaid subscribers during the three months ended 30 September, bringing its total subscriber base to 4.2 million.

Total revenue rose by 17%, the company says. Cell C says its EBITDA, excluding Virgin Mobile SA and gains from mobile number portability, also increased by 71% over the third quarter of 2006.

"The turnaround strategy implemented over the past year is paying off," says Cell C chief corporate officer Zeona Motshabi.

"With market share, performance and the regulatory environment all improving, we are confident and positive about prospects in 2008," she adds.