Untangling Cell C’s special purpose vehicles

Blue Label Telecoms created five special purpose vehicles (SPVs), dubbed SPV1 to SPV5, as part of Cell C’s two recapitalisation transactions between 2017 and 2022.

Blue Label acquired a 45% stake in Cell C for R5.5 billion in August 2017, accompanied by three SPVs.

However, the first recapitalisation transaction was not enough to save the mobile operator, and its situation continued to deteriorate.

Blue Label announced another recapitalisation programme to save the struggling mobile operator.

The recapitalisation included a R1.46 billion loan from Blue Label to Cell C, which was used to repay Cell C lenders. The lenders received only 20% of their claimed loans.

In September 2022, Blue Label informed shareholders that Cell C had implemented a turnaround strategy to improve operational efficiencies and reduce operational expenditure.

“The recapitalisation of Cell C will enhance the value of Blue Label’s shareholding and restore its shareholder value,” Blue Label said.

The second recapitalisation included two further SPVs. It is not easy to keep track of the five SPVs and what they were used for.

Daily Investor, therefore, created an easy-to-understand article about the five SPVs and why they were made.

Cell C’s 2017 recapitalisation

Three SPVs were created as part of Cell C’s 2017 recapitalisation process.

  • Cedar Cellular Investments 1 (RF) Proprietary Limited (SPV1)
  • Magnolia Investments 2 (RF) Proprietary Limited (SPV2)
  • Yellowwood Cellular Investment 3 (RF) Proprietary Limited (SPV3)

These SPVs were created to uplift Cell C’s debt. So, each SPV took on the debt obligations of Cell C to various lenders.

In return for the SPVs taking on the debt obligations, each was allocated ordinary shares in Cell C. The SPVs did not acquire recourse against Cell C for assuming these debt obligations.

SPV1 assumed the debt of European Bond Holders, SPV2 took over the debt of Chinese Lenders (CDB and ICBC), and SPV3 assumed the debt of South African lenders.

SPV1 received an 11.80% shareholding in Cell C, SPV2 received 16%, and SPV3 received 2.2%.

Cell C’s 2022 recapitalisation

As part of the 2022 recapitalisation transaction, all Cell C shareholders, including the SPVs, were diluted, and two new SPVs – SPV4 and SPV5 – became shareholders.

  • K2021889191 (South Africa) Proprietary Limited (SPV4)
  • K2022559963 (South Africa) Proprietary Limited (SPV5)

Following this dilution, SPV1’s shares in Cell C reduced to 4.04%. SPV3’s shares were transferred to the funders to whom SPV3 was indebted.

SPV2, which was placed into liquidation, sold its shares in Cell C to SPV4. The Prepaid Company (TPC), a subsidiary of Blue Label, funded SPV4’s acquisition of shares.

However, neither Blue Label nor TPC holds any shares in SPV4. They have also not appointed directors to the board of SPV4.

The shares in SPV4 are held by Albanta Trading 109 Proprietary Limited, which is a subsidiary of the Believe Trust – a trust established by Cell C for the benefit of Cell C employees.

SPV5 assumed the debt obligations of Cell C to Dark Fibre Africa (DFA) and was allocated shares in Cell C.

Again, neither Blue Label nor TPC holds any shares in SPV4, and they have also not appointed directors to the board of SPV4. The shares in SPV5 are held as per the shares in SPV4.

TPC has agreed to provide funding to SPV5 to settle this claim. This funding is limited to R275 million, none of which has been advanced.

SPV1 – Cedar Cellular

SPV1 first appeared on Blue Label’s financial statements in 2017. Its sole business is holding an equity interest in Cell C and historically issued notes to third parties to enable Cedar Cellular to acquire an equity interest in Cell C.

On 2 August 2017, TPC purchased Bond notes issued by SPV1 from Saudi Oger with a capital redemption value of $42 million and with a coupon rate of 8.625% per annum for a purchase consideration of $18 million.

TPC was entitled to assign its rights and obligations to a nominee. Accordingly, it has assigned such rights and obligations for 50% of the Bond notes, resulting in an effective purchase consideration of $9 million with a capital redemption value of $21 million.

For the 31 May 2023 year, TPC purchased $500,000 and R16 million of notes issued by SPV1. In 2022, TPC purchased SPV1 Notes with a Face Value of $14.339 million from Bankmed.

  • Shareholding in Cell C: 4.04%
  • Directors: Joseph Mashaba, Lehlomo Joshua Moela and Ziyanda Nkuta-Muelelwa
  • Employees: 0

SPV2 – Magnolia Cellular

SPV2 first appeared in Blue Label’s financial statements in 2017. Magnolia is a ring-fenced holding company whose sole business is holding an equity interest in Cell C.

In 2017, SPV2 assumed debt owed to Chinese lenders (CDB and ICBC) and in return was allocated 16% equity in Cell C pursuant to a new subscription.

As part of the restructuring of the debt into Cell C by third-party lenders, TPC was required to provide liquidity support to SPV2 of up to $80 million.

This liquidity support was to be provided over 24 months in the form of subordinated funding to SPV2.

Oger Telecoms contributed $36 million of the  $80 million, reducing TPC’s obligation in this regard to an aggregate maximum of $44 million.

TPC settled $24 million and $20 million during the 2019 and 2021 financial years, respectively.

Magnolia sold 5.47% of its Cell C shares to SPV4 for 223 million. SPV, therefore, should still hold 10.53% of Cell C. SPV2 sold all its equity in Cell C to SPV4 for R223 million.

SPV2 was liquidated, and the shares it held in Cell C were sold to SPV4 for R223 million. The money was used to expunge the debt owed by the Chinese lenders to SPV2 as part of the liquidation process.

SPV2 has been liquidated and deregistered and, therefore, has no directors, employees, or shareholding in Cell C.

SPV3 – Yellowwood Cellular

SPV3, also known as Yellowwood Cellular Investment 3 Proprietary Limited, is a ring-fenced private company. It is 100% owned by 3C Telecommunications Proprietary Limited.

It was issued with Cell C Class “A” Shares comprising 2.2% of the issued share capital of Cell C in exchange for R0.7 billion of Cell C debt. All the issued shares have been pledged in favour of Nedbank.

  • Shareholding in Cell C: 0% (all its shares were transferred to Nedbank)
  • Directors: Joseph Mashaba and Lehlomo Joshua Moela
  • Employees: 0

SPV4 – K2021889191

Blue Label first mentioned SPV4 in an announcement on 22 September 2022. It purchased shares in Cell C from SPV2, for which TPC provided a loan.

  • Shareholding in Cell C: 10.47%
  • Directors: Brett Dylan Copans (Cell C chief restructuring officer) and Andre Johannes Ittmann
  • Employees: 0

SPV5 – K2022559963

SPV5 first appeared in a Blue Label announcement on 22 September 2022.

During the 2023 financial year, Cell C’s R275 million debt to DFA was transferred into a new SPV in exchange for a 10% shareholding in Cell C.

TPC will loan an aggregate R275 million to SPV5 between December 2024 and December 2026 in return for a claim of R699 million.

SPV5 will apply the loaned amount of R275 million to settle DFA in full. In return, Cell C allotted and issued 10% of its share capital to SPV5.

Such shares were provided by SPV5 to TPC as security for the loan. Following the settlement of the claim of R699 million, TPC has a right to share 50% of any economic benefit generated by SPV5 in excess of the R699 million.

  • Shareholding in Cell C: 10%
  • Directors: Brett Dylan Copans (Cell C chief restructuring officer) and Andre Johannes Ittmann
  • Employees: 0

This article was first published by Daily Investor and is republished with permission.

Now read: Why Cell C’s financials worry investors

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Untangling Cell C’s special purpose vehicles