S&P say that South Africa’s third largest mobile phone provider continues to generate negative free operating cash flow and they have therefore placed Cell C a ‘B-‘ long term rating, with a negative CreditWatch.
“Despite Cell C’s strong track record of securing external funding, we believe currently funded sources of liquidity do not cover the maturity,” the ratings group said.
According to S&P, Cell C has a successful history of funding and support from Oger Telecom, which owns 75% of Cell C, but the tight maturity deadline limits “financial flexibility and raises credit risk”.
Cell C says that it has Oger Telecom’s full commitment to support Cell C financially and is “on track to execute its plans to service the maturing bonds”.
Oger however has previously indicated that it is interested in selling its majority stake in Cell C due to the recent termination rate cuts which were not as favourable to Cell C as originally expected.
Oger has reportedly invested US$450 million (R5.2 billion) in Cell C over the last 24 months and any further downgrade would make Cell C more expensive to support as the cost of financing the company would increase.
“Although we see potential for Cell C’s investments to result in meaningful revenue growth, the improvement in profitability required to achieve breakeven within the next three years may be challenging and relies on better prices for telecoms services, in our opinion,” S&P said.