Cell C slams credit ratings by Moody’s
Chief executive Jeffrey Hedberg said Moody's had not contacted the cellular operator for an update on its performance before announcing last week that Cell C was likely to default on its $805 million (R5.7 billion) bond repayments as it had failed to generate profit.
Cell C's first-quarter loss almost doubled to R369.5 million after debt repayments surged. Cell C has failed to generate profit six years after its launch. Its poor liquidity as well as lower-than-expected recovery levels have led to lower credit ratings from Standard & Poor's and Moody's.
However, Hedberg said Cell C was far from defaulting on its repayment, and this week it would pay R300 million towards servicing the loan. It would use part of the R500 million loan from Nedbank that it secured in 2005 to pay the debt.
The company, which pays about R600 million in coupon payments a year, needs to clear its debts before reaching profitability. Last year it engaged Hedberg to turn its fortunes around.
Hedberg said Oger Telecom, the largest shareholder of Cell C, had terminated talks to sell the company and was reviewing options to improve the capital structure.
In April Cell C confirmed that Saudi Oger, which owns 60 percent, had received several takeover offers.
Shareholders decided to halt the negotiations after Cell C met its targets in the past five months. Hedberg said the shareholders were looking at restructuring capital and one of the options was to repurchase its high-yield bonds.
Two years ago, Cell C raised e625 million (R6 billion) through two separate high-yield bonds. The low ratings mean that it will pay more interest on repayment.
However, Reuters said Cell C's euro and dollar bonds rose 1.5 percentage points and 2.5 percentage points, respectively, after the company said it might recapitalise.
According to analysts, Saudi Oger viewed Cell C as a non-core operation and would rather be left with its best -performing operation, fixed-line operator Turk Telekom, based in Turkey.
Hedberg has appointed new management and introduced new products to target the low-end market. Cell C expected to double revenues to R3 billion by 2010, increase subscribers from 3 million to 6 million and improve earning before interest, tax, depreciation and armortisation margins to between 25 percent and 30 percent.
It lags behind Vodacom, which has 23 million subscribers, and MTN, with 13 million customers.
Hedberg blamed the poor regulatory process and the dominance of MTN and Vodacom for Cell C's slow growth.
He said Cell C received little assistance in regulatory interventions during the first few years after its launch.
"The willingness of incumbents to take advantage of an under-resourced regulator continues to pose problems for Cell C," he said.
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