Cell C announced last week that it was looking to restructure €77.4m of its senior debt, as it seeks to improve its cash management. Cell C has a deep pool of international funding behind it, with Saudi company Saudi Oger Ltd owning the majority of its interest. Alec was joined by Cell C’s Chief Financial Officer, Robert Pasley to get some insights into the extension of the bond, and whether or not Cell C’s investment efforts can be expected to improve the quality of Cell C’s network. Cell C has added a significant amount of positive competition to an expensive sector for the consumer, but often fails to deliver with poor network connectivity. Hopefully change is on the way. – LF
ALEC HOGG: We’re going to be talking to a smaller company in a sector in a moment. The mobile operator Cell C is looking to restructure €77m of senior debt. Chief Financial Officer Robert Pasley gives us a look into these financial plans. He’s with us in the studio. Robert, I have to ask you first off… My friends, my family, and I followed Alan Knott-Craig to Cell C. I am bitterly disappointed. You guys seem to have major problems with your network. I can’t get people to come through to me on my telephone. What is going on with you?
ROBERT PASLEY: Alec, I’m extremely sorry to hear that because we’ve obviously made a huge effort to try to make inroads into the market, but it’s a long road and at the moment, we are investing substantial amounts of money in improving our network, particularly in Gauteng. We are in the process of swapping out one of our main suppliers (NSN), replacing them with Howie and we are seeing substantial improvements in Pretoria, which is where we started the swap, but it’s a long process and it will take a number of months before that swap is concluded.
ALEC HOGG: So in the interim, should we all move back to MTN?
ROBERT PASLEY: Not at all, but in the interim I’m aware there are specific issues that can often be addressed. However, in principle, we believe that our network quality, particularly as I say in Gauteng, is on the mend. It is improving, but it’s not something that happens overnight. It’s a significant amount of investment we’re putting in at the moment. This is one of the reasons why we are extending this bond. I should just put it on the table that this is not a restructure. It’s an extension of a bond that we currently have in place.
ALEC HOGG: It’s €77m bond.
ROBERT PASLEY: It’s actually €160m, which is coming up for maturity in 2015 and we have solicited and extension with the bondholders on a consensual basis. Obviously, for those who don’t wish to extend, there is a tender so they can take their money if they wish. In principle, we believe that we will get 100 percent response to extend the bond for a further three years, so it’s been moved from 2015 out to 2018.
ALEC HOGG: So you don’t have to repay all of this money. What incentive are you giving them to extend?
ROBERT PASLEY: There is a small incentive. Firstly, it’s quite an attractive bond, but secondly, there is a solicitation fee, which is being paid to assist in getting 100 percent consent.
ALEC HOGG: What is that?
ROBERT PASLEY: It’s just a small percentage, so it is paid to the bondholders to encourage them to hold onto that paper.
ALEC HOGG: Small?
ROBERT PASLEY: Less than one percent.
ALEC HOGG: Less than one percent. Robert, one of the issues there is if the bond is in Euros and the Rand is weak, it appears as though that 8.75 – is that correct – interest rate is a little bit misguided because if you add the decline in the Rand against the Euro, then the real cost to you guys is much higher.
ROBERT PASLEY: Alec, it is true that this is expensive paper for us. However, having said that, it’s an important part of our capital structure and for us, we actually see it as a positive that we have been able to achieve an extension of three years because it allows us to focus on what is really important, which is putting capital into infrastructure. That obviously means, I hope, improving the level of service, which we’re able to offer people like yourself.
ALEC HOGG: And my family, and my friends.
ROBERT PASLEY: Indeed.
ALEC HOGG: What’s happened to Alan? How’s he doing?
ROBERT PASLEY: As you’re aware, he suffered a stroke in November and it’s a long road to recovery. He’s looking well. He was actually in the office earlier this week, but I don’t think he’s going to be back in an executive role for a considerable period of time.
ALEC HOGG: So he’s on the mend, but as far as Cell C’s concerned he’ll be maybe just whispering in your ears, but not driving.
ROBERT PASLEY: He’s on the board. He’s obviously an iconic leader and he is really the heart and soul of the company, and I hope that he’s back sooner than perhaps I imagine. However, I think it is unlikely he’ll be back in an executive role, for the immediate future, at least.
ALEC HOGG: The parent company is certainly always perceived as being a very wealthy, well-funded business. Has it committed more capital to what has been a very difficult road for Cell C?
ROBERT PASLEY: Well, since Alan joined… In the first year that he joined, they invested over $200m into the business. Since last year, we’ve really revisited our business plan. We put an entirely new model on the table and our shareholders committed $450m of further capital to the business. Now, $400m of that has already flowed into the company. There’s $50m still to come. If more is required, I’m sure it will be put on the table, but clearly, there is a point at which the investors say you have to stand on your own two feet and this is one of the reasons why we are looking at the balance sheet very closely and why we’re extending this bond. We are confident now that with this bond extension as well as with other finance that we’re raising at the moment – or have actually recently signed with ICBC – we have sufficient capital to take the fight to the opposition.
ALEC HOGG: So Robert, what you’re telling me is ‘hang in there’. Sometime, my phone will begin ringing again, and not with direct missed calls. You’re working on it and you’ve been properly funded by the Saudis.
ROBERT PASLEY: By the Chinese, by the Saudis, and obviously, through this bond as well. Yes, absolutely.
ALEC HOGG: Okay. Well, I think that’s enough to respond to all those people whom I told to join me, and follow Alan Knott-Craig who was shaking up the South African industry and certainly, Cell C has been doing that. It’s a pity about the sharks but anyway, there’s always next year. That was Robert Pasley, the Chief Financial Officer of Cell C.
