Analysts are skeptical about whether Cell C will become a strong player in the telecoms market following the execution of its recapitalisation plans.
In December 2015, Cell C announced it had received offers to recapitalise the company, which would reduce net debt to around R6 billion in local currency.
The deal will see Blue Label Telecoms buy a 35% stake in Cell C for R4 billion, while Cell C’s management and staff will buy 30% of the company for R2.5 billion.
Cell C has struggled with its massive debt burden over the last decade, which CEO Jose dos Santos said was in the “high teens”.
Dos Santos is upbeat about the prospects of the company, and revealed plans to list Cell C on the JSE by around 2020.
He said Cell C is showing strong growth, and has a good financial position if its debt is taken out of the picture.
“We have a very healthy EBITDA (earnings before interest, tax, depreciation and amortization), and our EBITDA margin looks very good,” said dos Santos.
David Shapiro, deputy chairman at Sasfin Securities, is more skeptical about the prospects of the company, though.
“Whether Blue Label Telecoms can turn Cell C around is questionable,” he said on Business Day TV.
Shapiro said you need massive capital to compete in the telecoms market, highlighting Vodacom’s R9-billion network investment over the last year.
He said players need large investments to build and maintain networks, adding that Cell C does not have enough capital to compete effectively.
Momentum Wealth portfolio manager Wayne McCurrie agreed, stating that the smaller players – Cell C and Telkom Mobile – are struggling to compete against Vodacom and MTN.
“The mobile market is saturated. The only thing you can compete on is price, and I am not sure if that is a good competitive advantage,” he said.