Cell C’s rating slips further
Ratings agency Standard & Poor’s has, for the second time this year, downgraded Cell C’s credit rating in a further vote of no confidence in SA’s third cellphone network operator.
On Friday S&P said it had lowered its long-term corporate credit rating on Cell C to B- from B, and gave it a negative outlook.
In June S&P lowered the rating from B+ to B, at about the same time that Moody’s downgraded the company.
S&P said on Friday that the downgrade “follows lower- than-expected and sequentially declining earnings before interest, tax, depreciation and amortisation in the third quarter ended September 30 2007”.
This would result in a postponement in its ability to generate cash.
It said Cell C’s turnaround strategy had boosted its customer base, but that higher costs prevented earnings from accelerating.
“This on top of the underperformance of its 50% joint venture Virgin Mobile SA that was still far from reaching breakeven.”
But Cell C CEO Jeffrey Hedberg said on Friday the company “remains upbeat about its improving performance and prospects” despite the new decision by S&P.
“The view expressed by S&P about Cell C’s ability to grow into its capital structure is unfortunate because the company continues to make significant progress,” he said.
Cell C chief corporate officer Zeona Motshabi said: “We remain confident about developments in the regulatory environment, which we believe are starting to level the playing field for a late entrant to the market such as ourselves”.
This week Cell C won a small victory when it was told by the Competition Tribunal that it could question MTN in hearings into anti-competitive behaviour. These hearings follow a complaint by Cell C in 2005.
MTN has been accused of charging a commercial rate to connect calls made from Cell C’s community service payphones to MTN numbers.
Cell C believes the interconnection fee should be subsidised, but MTN has previously accused Cell C of not putting community phones in underserviced areas.
S&P said in its report on Cell C that the company had debt of R11.6-billion at September 30.
It said too that SA’s cellphone market remained fiercely competitive, and that Cell C’s earnings were weak.
It said an upgrade was unlikely over the short term, “as improvement is already factored into the ratings.
‘‘An outlook revision to stable is possible if Cell C manages to generate free operating cash flows in 2008,” S&P said.
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