Picture: CELL C
Picture: CELL C

A LARGE empowerment shareholder at debt-laden cellular services group Cell C is looking to disrupt a much-needed recapitalisation exercise initiated by JSE-listed Blue Label Telecoms.

CellSAf, which holds an effective 25% stake in Cell C, has filed an application in the Gauteng High Court to liquidate 3C Telecommunications, the holding company for Cell C.

The application does not affect Cell C operationally, but there would be implications for any recapitalisation of the company, since 3C’s only asset is its holding in Cell C.

Blue Label did not comment on developments, referring media enquiries to Cell C.

The liquidation application comes after CellSAf was seemingly not consulted on the Blue Label recapitalisation deal.

Consequent nonparticipation in the funding exercise will see the empowerment company’s equity stake diluted to 9%.

CellSAf is also disputing the deal on the basis that an MOI (memorandum of incorporation) stipulates that the support of 86% of Cell C’s shareholders is needed on major transactions.

Saudi Arabian company Oger Telecoms is the largest shareholder in Cell C, with a 60% stake. CellSAf owns a 25% interest, with Oger-aligned Lanun Securities holding 15%.

The MOI allegedly was not registered by 3C under the new Companies Act — despite the persistent urgings of CellSAf.

In court papers, CellSAf executive Solomon Mankazana alleged that 3C Telecommunications was "both financially and commercially insolvent, and is unable to pay its debts".

Cell C is the third-largest cellphone services operator in SA, but as a relative latecomer to the market has battled for viability against Vodacom and MTN.

Mr Mankazana contended 3C was trading recklessly and fraudulently — adding that 75% of the share capital had been lost and that liabilities exceeded assets by about R15bn.

He also complained that CellSAf had not seen audited or independently verified financial statements, and that the 3C board was dominated by what he said were members appointed by Oger, who "operated under a veil of secrecy".

The court submission by CellSAf, however, did estimate an operating loss of R2.3bn for Cell C in the 2014 financial year, and a loss of R3.8bn for 2015.

But on Wednesday, Oger argued that CellSAf’s application appeared to have been undertaken by certain individuals in CellSAf that were acting solely in their own interests.

Oger suggested that the application could cause harm to the interests of CellSAf shareholders generally.

In a statement sent to Business Day, Oger contended the application had no merit.

"It is also frivolous, vexatious, and an abuse of court processes. It is being vigorously opposed by 3C Telecommunications."

Oger added that the Blue Label proposals to recapitalise Cell C had already been approved by the boards of 3C Telecommunications and Cell C on December 29.

"It is progressing well and, once completed, will significantly improve Cell C’s sustainability, and enhance the company’s empowerment credentials."

CellSAf maintains, however, that even after the Blue Label transaction — which envisages a capital injection — 3C’s liabilities will still exceed assets by more than R15bn.

Blue Label’s recapitalisation proposals are subject to Cell C’s aggregate net borrowings being reduced to a maximum of R8bn following the conclusion of the recapitalisation exercise. CellSAf fears the net debt at Cell C will be reduced to the requisite amount by moving the "excess" debt to 3C, where the empowerment company has its shareholding.

The capital injection mooted in mid-December last year by Blue Label, which is one of the biggest distributors of Cell C airtime, will secure it an influential 35% stake in the company. Cell C staff will participate in the recapitalisation. It is understood Oger will also subscribe for more shares in the recapitalisation, ensuring an effective stake in Cell C of about 35%.

An investment analyst familiar with Blue Label — but not willing to speak on the record — said the liquidation application might be posturing by CellSAf to secure a better position in the recapitalisation exercise.

"Liquidating a telecom company … hardly seems prudent." The analyst, though, cautioned that it had been difficult to get the full financial picture at unlisted Cell C.

"The allegations made by CellSAf certainly add another variable to the little we already knew about the company … My sense, though, is that Blue Label are smart operators, and might be investing in a company — once de-geared — that could be on the lower portion of the profit J-curve."

There have been indications of a turnaround in Cell C’s financial and operational performance, with its subscriber base jumping from about 9-million in 2012 to more than 22-million.

The date for the Cell C recapitalisation is June 1, and the CellSAf application is expected to be heard later that month.