SOUTH AFRICA – Telecommunications group Blue Label Telecoms, Cell C’s largest shareholder, is selling its interest in Blue Label Mobile Group to investment holding company DNI 4PL Contracts, which would also acquire Blue Label subsidiary The Prepaid Company’s (TPC’s) interest in 3G Mobile, to settle its debts.
“Over the past two years, significant investments were made, necessitating an increase in interest-bearing debt in order to ensure that the group’s working capital requirements continued to be met. Accordingly, the Blue Label board of directors have decided to deleverage the business in order to ensure a more robust and liquid balance sheet going forward,” the company said.
The group, which said it had consistently generated positive cash flows from its trading operations since its listing had strained its working capital requirements through dividend distributions, share buy-backs and investing activities.
Blue Label will sell 809 ordinary shares of Blue Label Mobile, comprising 85% of the issued ordinary shares. The initial consideration payable is US$23.2m (R350m), while an additional US$6.6m (R100m) will escalate at prime plus 2%, compounding annually in arrears from the fifth business day after the date on which all suspensive conditions are met and the Cell C board of directors pass the solvency and liquidity test as per the Companies Act, Blue Label said.
100% of shares in 3G Mobile, which distributes mobile devices and handsets to retailers and cellular network providers, will be sold to DNI for US$36.1m (R544m). The initial amount will be adjusted depending on whether surplus or inadequate provision was made for bad debts or obsolete trading stock in the 2019 balance sheet.
Conditions for both transactions include approval by the relevant banks and regulatory bodies, and in the case of Blue Label Mobile, approval by minority shareholders.
DNI is a provider of pre-paid airtime services and mobile subscriber starter packs. Net1, the former social grants distributor which now focuses on low-cost banking, lending and insurance transaction technology, previously held a majority stake in DNI, which it reduced earlier this year. Net1 distributes mobile subscriber starter packs for Cell C via DNI.
Blue Label holds a 45% interest in mobile operator Cell C and has come under fire from shareholders, given Cell C’s high debt burden.