Ratings firm S&P Global recently downgraded Cell C’s corporate credit rating to the lowest junk-level rating on its scale.
The downgrade is mainly a result of Cell C missing an interest payment on its senior secured bonds, but S&P Global’s explanation also points to uncertainty regarding the operator’s spectrum assets.
S&P Global said Cell C’s revised recovery rating and lower recovery prospects are partly due to uncertainty over a potential buyer’s ability to have unrestricted use of Cell C’s spectrum.
“For example, in 2015, the Independent Communications Authority of South Africa placed restrictions on the use of Neotel’s spectrum by Vodacom when it attempted to purchase Neotel,” said S&P Global.
The uncertainty around spectrum has a direct impact on Cell C’s value in a bankruptcy scenario.
“Uncertainty over which potential buyers could emerge and whether ICASA could restrict spectrum use makes Cell C’s spectrum assets difficult to value,” said S&P Global.
Vodacom and Neotel must be celebrating this as poetic justice, as Cell C vehemently opposed the use of Neotel’s spectrum by Vodacom if the deal went through.
Cell C CEO Jose dos Santos said if Vodacom were to acquire Neotel’s fibre network and its mobile spectrum, it would render the company’s iron grip on the market into an unassailable monopoly.
“Vodacom’s takeover of Neotel would have delivered substantial amounts of spectrum to the former, translating into an incredible and unfair advantage that could only hurt the market and ultimately consumers,” said dos Santos.
These restrictions, which Cell C fought for, have now come full circle – causing damage to Cell C’s corporate credit rating.
As a heavily-indebted company, which is in the process of restructuring its debt, a poor credit rating is particularly bad news.
It means Cell C will have to pay more to borrow money in global markets, which in turn will make it more difficult for the operator to become profitable.
Cell C’s victory in preventing Vodacom from using Neotel’s spectrum can therefore be seen as an own goal, which is now making the company’s financial future less certain.