Blue Label Telecoms, together with various subsidiaries, has concluded binding long-form agreements with Cell C and various Cell C financial stakeholders, including certain shareholders and creditors of Cell C.
The deal is unconditional and all conditions precedent having been fulfilled, waived or deferred.
In terms of the Umbrella Restructure LFAs, Cell C will be restructured and refinanced with the purpose of deleveraging its balance sheet, providing it with liquidity with which to operate and grow its businesses and to position itself to achieve long term success for the benefit of its customers, employees, creditors, shareholders and its other stakeholders.
Cell C has implemented a turnaround strategy, focusing on operational efficiencies, reducing operational expenditure and optimising traffic. This includes a significant reduction in capital expenditure and a conversion of a fixed cost infrastructure-based network to a variable operational expenditure model.
This, together with the recapitalisation of the current debt structure, will result in a significant improvement of its liquidity and ensure the long-term sustainability of Cell C.
Capital and debt restructure
In order to facilitate the restructuring of Cell C’s debt owing to certain secured lenders totaling about R7,3-billion, with such amount being fixed as at November 2019, The Prepaid Company (TPC), a wholly-owned subsidiary of Blue Label, will lend an amount of R1,03-billion to Cell C, which is the amount required by Cell C to affect a compromise offer made by Cell C to certain of its secured lenders.
The TPC debt funding will be provided by TPC to Cell C in the form of a secured loan, and will be used to settle the claims of secured lenders by paying an amount of 20 cents to the rand.
Certain secured lenders have elected to remain invested in Cell C. These secured lenders will be entitled to loan an amount equal to the 20c received, back to Cell C under a new loan arrangement. This The Reinvestment Instrument, which will be interest-bearing and secured, will have an aggregate capital face value equal to 2,75-times of the amount advanced.
In addition, the participating lenders will be entitled to share pro-rata in a fresh issue of ordinary shares in Cell C at a nominal value.
All shareholders of Cell C will dilute proportionately to enable the issuance of these ordinary shares to the participating lenders.
Simultaneously but separately with the issuance of the Reinvestment Instrument, Cell C will, pursuant to a rights issue at nominal value, allot and issue shares to TPC. Following such issue and various other issues of shares to be made by Cell C to third parties at nominal value pursuant to the Transaction, TPC will hold 49,53% of the shares in Cell C, inclusive of those shares which TPC will be entitled to, pursuant to the Reinvestment Instrument.
In addition, Comm Equipment Company, a wholly owned subsidiary of TPC, will defer an amount of R1,1-billion owed by Cell C and some of its subsidiaries to it on the date the conditions precedent to the Transaction are fulfilled or waived, which amount will be repaid in equal monthly installments over 60 months commencing from the Effective Date.
Cell C working capital requirements
In order to further assist Cell C with its working capital requirements, TPC will purchase Cell C pre-paid airtime for a purchase price of R1,2-billion (inclusive of VAT); and purchase, by way of four further quarterly payments of R300-million (inclusive of VAT), additional pre-paid airtime, with each such quarterly payment payable at the beginning of each calendar quarter.
In addition, in conjunction with other third parties, TPC will undertake to purchase certain minimum levels of pre-paid airtime from Cell C in accordance with an agreed monthly schedule or otherwise in accordance with market requirements.
Meanwhile, TPC has entered into agreements with Investec Bank, FirstRand Bank and another financier to sell Cell C pre-paid airtime, with a face value of R2,115-billion, for a purchase consideration of R1,692-billion (inclusive of VAT). TPC will have a repurchase obligation in respect of this airtime, payable in 48 equal bi-monthly instalments.
In addition, TPC will sell to a third-party Cell C pre-paid airtime for a purchase consideration of R250-million (inclusive of VAT). TPC will have a repurchase obligation in respect of this airtime, payable in 18 equal monthly instalments.