Telkom Said to Mull Purchase of Cell C Debt in Ownership Bid

  • Fixed-line operator said approached by Cell C’s creditors
  • Cell C wants to stick to offer from Blue Label Telecoms

Telkom SA SOC Ltd., the biggest SA fixed-line operator, is considering acquiring Cell C Pty Ltd.’s debt as it seeks to gain access to subscribers of the nation’s third-largest mobile-phone company.

Cell C creditors approached Telkom to help reorganize debt that includes 640 million euros ($677 million) of bonds maturing in July 2018, said the people, who asked not to be identified because discussions are private. Telkom, whose attempts to start talks were rejected by Cell C this week, is trying to gain access to the company’s financials ahead of a possible offer, one of the people said.

Creditors to Cell C include Industrial and Commercial Bank of China Ltd., China Development Bank Corp., Development Bank of Southern Africa Ltd. and Nedbank Group Ltd., according to the people. DBSA and Nedbank declined to comment, while ICBC and China Development Bank didn’t immediately respond to e-mailed requests for comment. Telkom said it won’t comment on market speculation, while Cell C declined to comment.

Cell C’s board this week rebuffed an offer from Telkom and said it would rather pursue an existing recapitalization plan with Blue Label Telecoms Ltd., which is seeking to take a 45 percent stake in the wireless carrier for 5.5 billion rand ($424 million). Cell C, which according to Standard & Poor’s Global Ratings has missed interest payments on senior secured notes and unrated-debt instruments, needs to finalize the Blue Label deal by Tuesday.

Expand Operations

Gaining Cell C would help Telkom expand its mobile operations to compete against Johannesburg-based Vodacom Group Ltd. and MTN Group Ltd. Depending on the outcome of a due diligence process Telkom would consider putting in as much as $1 billion, people familiar with the matter said this week.

While some of the lenders have signed the Blue Label recapitalization agreement, the bigger Chinese creditors have not yet done so, according to two of the people. Blue Label dropped as much as 5.2 percent to the lowest level since June on a closing basis. Telkom pared earlier losses to trade 0.9 percent lower by 3 p.m. in Johannesburg on Friday.

The deal is opposed by CellSAf, a Cell C minority investor which last year filed a legal claim to block Blue Label’s bid, saying it would unfairly dilute its shareholding. Cell C management and staff will subscribe for 25 percent of the company and 3C Telecommunications Pty Ltd. will hold the remaining 30 percent of the total issued share capital by injecting 16 billion rand. 3C is 75 percent owned by Dubai-based Oger Telecom Ltd. and 25 percent by CellSAf.

Cell C last year failed in its efforts to sell $600 million of bonds.

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