Blue Label acquires another 10% of Cell C

Blue Label Telecoms has gained another 10% economic interest in Cell C through its subsidiary, The Prepaid Company (TPC), in exchange for settling the mobile operator’s debt to Dark Fibre Africa (DFA).

DFA is an open-access fibre infrastructure and connectivity provider in South Africa that finances, builds, installs, manages, and maintains a network for metro and long-haul telecommunications traffic.

South African mobile and fibre network operators use DFA’s wholesale services to create or supplement their own offerings.

Mobile network operators like Cell C typically contract with DFA to lay fibre to their towers.

In its half-year results ending 30 November 2024, Blue Label explained that the debt Cell C owed was transferred in 2022 to a newly established special purpose vehicle, called SPV5, in exchange for a 10% shareholding.

The shareholding remains SPV5’s sole asset.

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 Cell C’s debt to 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.

Blue Label has now announced that it issued a guarantee in favour of “the lessor” (i.e. DFA) for the repayment of this debt, while TPC committed to providing the repayment amount.

The debt will be settled in the following tranches:

• R100 million on 31 December 2024;
• R100 million on 31 December 2025;
• R50 million on 31 December 2026; and
• an additional R25 million on 31 December 2026, contingent upon the occurrence of certain liquidity events.

“SPV5 is required to repay TPC for the amounts advanced from any future sale of shares or from dividends earned thereon, along with an additional R424 million plus 50% of the fair value of its 10% shareholding in Cell C, to the extent that the proceeds exceed R699 million,” Blue Label explained.

“Since SPV5’s only asset is its shareholding in Cell C, the repayment will be dependent on the disposal of these shares and dividends earned thereon.”

Control of Cell C

As a result, as of 31 December 2024, TPC has effectively acquired an additional 10% economic interest in Cell C, capped at the repayment amount.

“This investment will be equity accounted, subject to the cap, alongside TPC’s existing 63.19% economic interest in Cell C,” Blue Label stated.

“SPV5 is precluded from selling the Cell C shares without TPC’s consent, but TPC has no rights with respect to directing the voting rights attached to the shares.”

In the event of default, TPC could acquire Cell C’s 10% shareholding in settlement of its loan.

Blue Label said this would only be with the prior approval of the Competition Commission and the Independent Communications Authority of South Africa (Icasa), as such an acquisition would result in TPC acquiring control of Cell C.

It should be noted that Blue Label has nearly completed the approval process to acquire control of Cell C.

In January, Icasa cleared the transfer of control of Cell C’s spectrum, network, and operating licences to TPC.

The Competition Commission greenlit the change in April 2024, recommending that the Competition Tribunal approve it.

“TPC’s loan commitment to SPV5, which has been accounted for as a derivative liability (carrying a value of R7 million as of 30 November 2024 and 31 December 2024, respectively), was derecognised on 31 December 2024 and reclassified as part of the acquisition cost of the additional investment in Cell C,” said Blue Label.

“The present value of the remaining funding obligations to SPV5, amounting to R148 million as of 31 December 2024, was recognised as part of the investment cost, with a corresponding liability recorded to SPV5.”

Blue Label said that due to previously unrecognised equity-accounted losses associated with the Cell C investment, the total increase in the cost of the investment of R241 million was recognised as a loss in the Group’s income statement.

This reduced the balance of previously unrecognised equity-accounted losses.

Blue Label also disclosed that TPC received a new short-term loan facility with Rand Merchant Bank in December for R311 million at an interest rate of Prime plus 1%.

The debt facility was scheduled to mature on 28 February 2025. However, TPC is in the final stages of securing an extension.

This will extend the facility for an additional 18 months, with repayments in equal monthly instalments commencing on 31 March 2025, Blue Label said.