There’s an old saying about life insurance: it’s always sold, never bought. The same could probably be said of the proposed IPO of South Africa’s fourth-largest mobile operator, Cell C. In a mature telecoms market dominated by Vodacom, MTN and Telkom, convincing investors to buy into yet another turnaround story will take some selling indeed.
There’s healthy scepticism in the market — and with good reason. Cell C is still so heavily indebted that its auditors warn in the latest financial statements that its ability to stay afloat is in serious doubt. The planned listing could, in theory, relieve that pressure: debt conversions and IPO proceeds are expected to eliminate debt owed to its parent, Blu Label Unlimited. But that will, paradoxically, require a successful IPO first.
Beyond the debt, questions remain. Can an “asset-light” operator that rents its network capacity from others ever achieve sustainable margins in a market this competitive? Will Blu Label and Cell C’s intricate restructuring — and its quirks, such as the “clean-up” revision of subscriber numbers — pass the institutional investor smell test? And how robust is Cell C’s business model in the long run? Once South Africa’s digital migration unlocks new spectrum, the value of its key asset could diminish; and if the big three operators move aggressively into the mobile virtual network operator space Cell C’s niche could shrink even further.
The listing could still succeed — if management can convince investors that this time really is different. For now, the market is reserving judgment.
The detailed listing documents, once released, will be pored over line by line, because when an IPO must resolve going-concern doubts through a successful sale, much like with life insurance, it pays to read the fine print.
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