S&P downgrades Cell C

By Gugu Lourie for Tech Financials 

South Africa’s troubled mobile operator, Cell C, has been downgraded on liquidity and refinancing risks concerns, Standard & Poor’s (S&P) Global Ratings has said in a statement.

Cell C faces considerable short-term liquidity and refinancing risks, with R8.8 billion of its R9 billion reported debt maturing within the next 18 months, and still-negative free cash flow.

The rating agency lowered Cell C’s issuer credit rating to CCC- from CCC+, placing it in “junk” territory.

The agency said Cell C would face a near-term liquidity crisis if it was unable to refinance upcoming maturities and secure new financing.

“This would increase the likelihood that Cell C might engage in a distressed exchange or restructuring discussions, which would likely result in us lowering the ratings further,” said S&P.

“We could raise the ratings if Cell C successfully refinances its upcoming debt maturities and if the refinancing enhances its capital structure and liquidity.”

Cell C’s liquidity position continues to weaken, while re-financing risk has intensified because of upcoming debt maturities.

In addition, it was announced in February that The Buffet Consortium, backed by financial institutions, would become a minority shareholder in an effort to bolster the company’s balance sheet and ensure its sustainability.

“Still, the conditions, timing, and outcome of such a transaction remain uncertain,” warned S&P.

Cell C’s reported cash on hand of about R500 million at Dec. 31, 2018, and a committed vendor financing facility of $71 million (R1 billion).

“Cell C’s liquidity position remains vulnerable to funding conditions, as well as the willingness of financial institutions to refinance the upcoming maturities and extend new capital expenditure (capex) financing lines,” said S&P.

The company’s upcoming debt maturities in 2019 and 2020 include:

  • A R1.4 billion airtime backed facility due July 2019;
  • About R3.8 billion of bank funding due January and July 2020;
  • A $184 million (R2.6 billion) senior secured bond due August 2020; and
  • A rolling R900 million handset financing facility.

“While the company generates sufficient EBITDA to cover its cash interest costs, the high effective interest rates on its
current borrowings and its unfunded capex profile lead us to assess its current capital structure as unsustainable,” said S&P.

“Furthermore, macro-economic conditions in South Africa remain weak, limiting Cell C’s ability to increase revenue and improve margins.”

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