Cell C owner close to R450-million loan deal

Blue Label co-CEO Brett Levy says they are close to concluding a transaction to buy over a R463.6 million loan that Cell C had with international investment fund Gramercy.

Levy was responding to questions during a recent media briefing about Blue Label’s interim financial results for the half-year ended 30 November 2024.

At the beginning of November, Blue Label announced that its subsidiary and Cell C’s majority shareholder, The Prepaid Company, concluded a binding term sheet with Gramercy to buy over the loan for R450 million.

The Prepaid Company holds a 63.19% economic interest in Cell C. However, Blue Label’s voting rights in Cell C are currently capped below 50% until it gets permission from the Competition Tribunal to become the controlling shareholder.

Blue Label explained that Gramercy’s beneficial owners are various commingled funds and a large UK corporate pension plan.

The company previously explained that Cell C and Gramercy entered into a loan agreement on 21 September 2022, under which Gramercy has a claim of R414,765,527 plus interest.

The claim bears interest at 10% per annum and Cell C was required to settled it by no later than 31 March 2026.

The purchase price for Gramercy’s claim is payable in four non-interest-bearing instalments of R112.5 million. The payments are to be made on the date the transaction closes, 30 November 2025, 31 March 2026, and 30 November 2026.

Blue Label noted that the necessary conditions precedent were not met by 30 November.

Asked which conditions were outstanding, Levy said they were only waiting for the South African Reserve Bank to clear the foreign currency transaction.

He said they are expecting the clearance soon, which will allow the transaction to proceed.

Increasing Blue Label’s stake in Cell C

As a separate transaction, which Blue Label said is not in any way inter-conditional on the debt claim deal, The Prepaid Company and Gramercy have concluded a binding term sheet for its shares in Cell C.

Under the terms of the deal, The Prepaid Company will acquire Gramercy’s 6.09% stake, representing 88,939,299 shares, for R6 million.

This will also be payable in four non-interest bearing equal instalments in cash, funded from own cash resources or existing facilities, at the end of November 2025, March 2026 and November 2026.

Unlike the debt claim transaction, Blue Label said the share purchase requires the approval of the Competition Tribunal and Independent Communications Authority of South Africa.

Levy explained that for this equity transaction with Gramercy to proceed, they would need the Competition Tribunal to approve The Prepaid Company taking a controlling stake in Cell C.

MyBroadband previously asked Blue Label whether it was accurate to say that this transaction indicated a valuation for Cell C of just over R98.5 million.

However, Blue Label said that inferring an equity value based on the transaction would be inaccurate.

The company said Gramercy’s investment has always been in the form of debt and therefore the stake’s value must be viewed in that context.

“As part of the newly recapitalised Cell C, Gramercy also received a notional equity stake in Cell C, which served as a security blanket,” Blue Label told MyBroadband.

Cell C went through two recapitalisation deals in an effort to prevent the mobile operator from going bankrupt.

In addition to a substantial cash injection from The Prepaid Company, the last recapitalisation offered debt holders a choice:

1. Take an 80% haircut and exit; or
2. Remain as a debt holder in the new Cell C and take a 45% haircut, with the balance paid out in later years.

Blue Label explained that the second option was the higher risk, higher reward scenario, which Gramercy selected.

“It is important to note that Gramercy’s investment in Cell C was in the form of debt,” said Blue Label.

“As such you cannot infer an equity value based on the transaction of Gramercy’s sale of equity in Cell C, but rather, their success is measured in terms of the value they received against the post-recap debt investment.”