Cell C is now officially in default on its debt – here’s why customers probably don’t need to worry just quite yet
- Cell C’s credit rating has been cut after it missed interest payments for July.
- The operator said it intentionally cut payments in a bid to recapitalise the business.
- Industry experts says Cell C is likely be sold to another network operator rather than closing down – which means its users don't need to worry just yet.
- For more stories, go to Business Insider SA.
Cell C, the country’s third-largest mobile phone provider, this week saw S&P Global cutting its credit rating to D, for "default", after it missed debt interest payments due in July.
In a statement on Thursday, S&P said unless Cell C is able to restructure its debt or recapitalise, there is “an increased likelihood” that the operator will be unable to pay its debt obligations.
Cell C chief executive officer Douglas Craigie Stevenson told Bloomberg that the company suspended payments in a bid to recapitalise and increase liquidity.
Cell C has debt of more than R9 billion.
The S&P downgrade comes less than a month after Cell C said it is investigating “irregular business practices”, without going into any further detail.
Also read: Crisis-hit Cell C owes MTN almost R400 million – and MTN is losing hope of getting the money back
Shares in Blue Label Telecoms, Cell C’s majority shareholder, dropped by from R3.12 on Wednesday to R2.74 following S&P’s downgrade.
Herenya capital founder Petri Redelinghuys said Cell C is likely looking for a partner to fund the business and help cover debt.
"Unless they can find an equity partner, they will need to get additional credit to cover debt and interest repayments," Redelinghuys told Business Insider South Africa.
“It’s like maxing out a credit card at one bank, and asking another bank to give it a credit card to cover the old credit card’s debt.”
He said if an equity partner is not found, the company will either be liquidated or sold to an existing network operator.
Technology analyst Arthur Goldstuck previously told Business Insider South Africa that while financial difficulties may worry customers, they are unlikely to be affected by it.
Users should only start worrying when they struggle to connect to the network, which is highly unlikely, he said.
“I don’t think Cell C is going to close down anytime soon. The reality is that they have a major subscriber base which is an incredibly valuable asset that is certainly not going to be dumped,” Goldstuck told Business Insider South Africa.
"If things go seriously wrong someone like Telkom would likely buy it."
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