Blue Label Telecoms and Net1 cut Cell C's valuation to zero

South Africa's third-largest wireless carrier faces a worrying debt load. 

Majority shareholders of South Africa’s third-largest wireless carrier, Cell C, have both cut the fair value of the wireless carrier to zero.

Technology firms Blue Label Telecoms and Net1 are majority shareholders of Cell with the firms owning 45 percent and 15 percent respectively.

“Fair value” is an accounting term that reflects the estimated price a company could be sold for, given its assets and liabilities.

Cell C, which has struggled to make consistent profits since it became South Africa’s third mobile operator in 2001, is grappling with a hefty debt burden.

In August S&P Global Ratings downgraded Cell C’s debt to D, or “default,” its lowest-possible junk rating. This came after the cell phone operator “failed to make interest payments on certain bilateral loan facilities”.

Net1, on Thursday issued a notice to shareholders indicating its decision to write down Cell's C’s fair value to zero, for the fiscal year ended June 30. Net1 had rescheduled the release of its quarterly financial results to September 26, 2019, in order to allow more time for clarity on developments in Cell C's restructuring process.

Net1’s statement follows an earlier notice by Blue Label that it had impaired Cell C’s investment to nil for the year ended May 31, 2019. Blue Label on Thursday had issued a trading update and warned of a headline loss of up to 314c per share, compared to a profit of 115c previously. The loss has partly been attributed to Cell C. 

Cell C is currently engaged in a restructuring plan with its stakeholders, and Net1 said it is supportive of the process and has acknowledged that there have been “positive developments” since the end of June.

“The decisions of Net1 and Blue Label to write down the value of their respective equity holdings do not impact Cell C's operations, DNI's distribution capabilities or the proposed transactions being pursued by it,” said Net1 CEO Herman Kotze.

“We believe that Cell C's long-term prospects will significantly improve once it has been recapitalised,” he added.