Cell C creditors push for Telkom takeover

Cell C’s creditors aren’t giving up on a takeover offer from rival Telkom, which South Africa’s third largest mobile network operator rejected last week.

Senior debt holders have hired investment banking firm Moelis & Co and corporate lawyers Linklaters and DLA Piper to lobby for the Telkom proposal, people familiar with the matter said. They could block Cell C from pursuing an alternative recapitalisation plan by forcing the carrier into liquidation or business rescue, said the people, asking not to be identified because talks are ongoing.

A takeover by Telkom would return about 86c on the rand to lenders, while banks may have to take a haircut if Cell C goes ahead with a transaction involving local investment company Buffet Group, they said. Creditors are also requesting that Cell C’s board act independently from majority shareholder Blue Label Telecoms, the people said.

“The board is continuously approached by various parties and we remain focused on executing our turnaround strategy,” Cell C said in an e-mailed response to questions. “Independent financial and legal advisers have been appointed representing the lenders and constructive discussions on the recapitalisation are under way with them and other stakeholders in respect of various proposals.”

Linklaters, DLA Piper and Moelis & Co declined to comment, while Buffet Group could not be reached. Telkom said it hasn’t had any further communication from Cell C’s side.

It’s not the first time Cell C has spurned advances from Telkom, which wants to combine the country’s two smallest network operators to better compete against industry leaders MTN Group and Vodacom Group. After running into financial difficulties in 2016, Cell C opted for a deal with Blue Label, which now owns 45% of the company.

Debt woes

In July, Cell C missed interest payments and suspended future obligations, resulting in S&P Global Ratings cutting Cell C’s assessment to default. The company, which generates about R15-billion rand in revenue, is struggling to repay about R9-billion of debt.

“This restructuring involves confidential discussions with various stakeholders, including Cell C’s board, shareholders, financiers and professional advisers,” Cell C said on Monday. “We acknowledge public interest in Cell C’s restructure. However, we request confidentiality in the process and will update the market in due course.”

Cell C agreed on an extended roaming agreement with MTN last month that will give it access to the network of South Africa’s second largest wireless carrier. As part of that pact, Cell C will pay as much as R5-billion/year in roaming charges, from about R1.8-billion, the people said. Lenders haven’t been given a chance to review the deal, they said.  — (c) 2019 Bloomberg LP