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Smile Telecoms, a South African and Pan-African telecoms provider, is in dire financial straits. With an agreeable PIC, hundreds of jobs and millions of dollars could be saved. However, at this late stage in proceedings, the PIC no longer wants to play ball. The plan to keep the company afloat involves an injection of $51m, and a voluntary one-year deferral by the PIC of a right to sell its equity stake back to Smile for $45m. In other words, if the PIC is willing to wait for their $45m – which they initially agreed to do – then Smile remains in business. If not, Smile will go the way of the Dodo.
The accounting firm Grant Thornton estimates that the plan’s approval will see creditors – South African pensioners amongst others – made whole to the tune of 94-odd cents on the Rand, but only 5 cents if the plan is canned. On face value, it doesn’t appear that the PIC’s decision is a difficult one. Who wouldn’t want to save a few hundred jobs and save pensioners, as an unnamed source puts it, ‘hundreds of millions of dollars’. Well, apparently the PIC, at least recently. For strangely, at a plan-sanction hearing held earlier in March, it was revealed that the PIC agreed to the plan on February 17th, but then voted against the plan at an official scheme meeting held on March 12th.
Smile’s recent court application was an appeal to the court to sanction the original plan (which includes the PIC voluntary put-option pay-out deferral). The PIC and GEPF’s legal representatives have responded that it unclear whether it would be of any use for the court to sanction a plan which the PIC (and GEPF) hasn’t agreed to. For the PIC’s nay vote at the scheme meeting precluded the terms of the plan to be enforceable across the board – less than 75% of creditors by money lent voted in favour of the plan.
For his part, Judge Trower indicated that ‘he was quite satisfied that the plan ought to be sanctioned if the Al Nahla funding condition – i.e. the PIC-voluntary-pay-out deferral – were to be met’. However, he was reluctant to make a conditional order to this effect. Instead, he adjourned the hearing to allow for further negotiations. He did say that if the funding conditions were met, he would order that the plan be sanctioned, but not otherwise.
In short, the PIC faces a seemingly simple choice; agree to wait a year to receive $45m, or enforce its rights to receive that money now, but cause the loss of hundreds of jobs and hundreds of millions of dollars in savings. Why would an organisation charged with protecting and growing the savings of millions of South Africans allow the loss of millions of dollars of that very savings when they could so easily prevent it? Why indeed.
South Africa PIC, Saudis in last ditch talks over Smile’s plan
(Bloomberg) – South Africa’s Public Investment Corporation and Saudi investors are in last ditch talks to avoid a potential liquidation of Africa-focused telecom operator Smile Telecoms Holdings.
PIC, which owns a minority stake and is a creditor to Smile, must reach an agreement by the end of Wednesday over an outstanding put option with the Al Nahla group, the largest shareholder, according to people familiar with the matter.
If the two investors fail to reach a deal, the company could be forced into liquidation and lenders including a group of African banks could suffer losses on the bulk of about $250m senior loans, said the people, who asked not to be named because talks are private.
Smile Telecoms launched a restructuring plan in the UK last month. Al Nahla led a proposal to inject more than $50m cash in the company provided PIC extended the terms of an option to sell its stake to other shareholders for $45m, the people said.
The payment on the put option is due on March 24, they said. Without an agreement on the put option, the overhaul could fail.
“Smile Telecoms has embarked on a restructure plan, which the PIC supports subject to certain terms and conditions,” a PIC spokesperson said on Tuesday. “PIC continues to engage other shareholders in Smile Telecoms to find ways of preserving value for PIC clients.”
A representative for Smile declined to comment. Al Nahla didn’t respond to calls and emails seeking comment.
Founded in 2007, Smile Telecoms provides broadband services in Nigeria, Uganda, Tanzania and the Democratic Republic of Congo. PIC participated in a funding round in 2015 as the company raised equity and debt.
Last month, Smile announced that its two co-founders Irene Charnley and Mohammed Wajih Sharbatly would step down from its board as it appointed restructuring specialists.
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