3. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
3.2 Liquidity risk
 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due, both under normal and stressed circumstances.

The Group's objective is to maintain prudent liquidity risk management by maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding by keeping committed credit lines available. Cash flow forecasting is performed in the operating entities of the Group to ensure sufficient cash to meet operational needs while maintaining sufficient headroom to ensure that borrowing limits (where applicable) are not breached..

Surplus cash held by the operating entities over and above the balance required for working capital management is transferred to the Group treasury. Group treasury invests surplus cash in interest-bearing accounts, identifying instruments with sufficient liquidity to provide adequate headroom as determined by the above mentioned forecasts.

Maturity of financial liabilities

The table below analyses the undiscounted cash flows for the Groups non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date.

  Note
reference		   Less than  
one month  
or on  
demand  
R'000  		   More than 
one month 
but not 
exceeding 
one year 
R'000 		   Payable in:
More than
one year
but not
exceeding
two years
R'000		   More than
two years
but not
exceeding
five years
R'000		   More than
five years
R'000		  
2019                        
Interest-bearing 3.6.2   18 553     1 706 571    1 722 693   2 877   —  
Non-interest-bearing borrowings 3.6.2   —     21 924    13 952   —   —  
Trade and other 3.6.1   3 354 792     1 860 145    —   17 304   —  
Put option liability 3.7   —     158 638    —   —   —  
Financial liability at fair value through 3.7   —     301 716    —   —   —  
Financial guarantee 3.6.3   243 492*   1 250 0001   —   —   —  
Contingent consideration 3.6.1   1 923                    
Bank overdraft 3.5.4   7 843     —    —   —   —  
Total     3 626 603     5 298 994    1 736 645   20 181   —  
2018                        
Interest-bearing borrowings 3.6.2   715 831     923 199    163 497   1 555 238   —  
Non-interest-bearing borrowings 3.6.2     74     —    —   —   —  
Trade and other payables 3.6.1   3 357 549     1 673 571    96   —   —  
Put option liability 3.6.1   —     108 203    —   —   —  
Financial liability at fair value through profit and loss 3.7   —     302 318    251 932   —      
Contingent consideration 3.6.1   —     4 744    —   —   —  
Total     4 073 554     3 012 035    415 525   1 555 238   —  
* Financial guarantee contracts represent 100% of the balance that would be due if the surety was called upon.
1 As at 31 May 2019, this balance has not been recognised as a liability. Refer to note 3.6.3.

Trade and other payables exclude non-financial instruments, being VAT and certain amounts included within accruals and sundry creditors.

Liquidity support

As part of the restructure of the debt into Cell C by third-party lenders, The Prepaid Company will be required to provide liquidity support to Magnolia Cellular Investment 2 (RF) Proprietary Limited (SPV2), which is 100% held by 3C Telecommunications Proprietary Limited, of up to USD80 million, which liquidity support will be provided over 24 months and will be in the form of subordinated funding to SPV2. Oger Telecoms contributed USD36 million of the aforesaid USD80 million thus reducing The Prepaid Companys obligation in this regard to a maximum of USD44 million. As at 31 May 2019, the Group has contributed USD24 million to SPV2. The remaining amount due of USD20 million is included in financial liabilities at fair value through profit and loss.

Facility Borrower Investec Rand
Merchant
Bank		   Value
R'000		   Interest
rate		 Interest
period		 Repayment
date
Senior facility A Comm Equipment Company Proprietary Limited 50% 50%   858 152   3-month JIBAR plus Quarterly 31 August 2020
Senior facility B Comm Equipment Company Proprietary Limited 50% 50%   650 000   Prime plus 0.35% Monthly 31 August 2020
Mezzanine facility Comm Equipment Company Proprietary Limited 100% —   410 532   Prime plus 1.5% Monthly 31 August 2020
Facility A The Prepaid Company Proprietary Limited 100% —   1 500 000   Prime minus 0.5% Monthly 30 September  
2019*
Facility B The Prepaid Company Proprietary Limited 100% —   550 000   Prime Monthly 30 September  
2019*
          3 968 684        

* Subsequent to year-end the Group has renewed these facilities until 29 November 2019.

  • The Group has a working capital loan facility with Investec Bank Limited of R2.050 billion (2018: R2.050 billion). Drawdowns were made during the year, and the utilised portion of the facility at year-end amounted to R1.512 billion (2018: R690 million).
  • The following debt covenants are in place for the TPC facilities within Investec:
Facility A – Debt to EBITDA ratio must be less than 2.5 times
  – The sum of 70% of debtors and 80% of stock must exceed the utilised value of the facility
  – 90% of the cash deposits are to be held with Investec (on average for the month)
Facility B – Debt to EBITDA ratio must be less than 2.5 times
  – The facility commitment value must be less than 25% of BLTs 45% stake in Cell C
  • The Group has not been in breach in respect of these covenants. The Group has pledged certain securities in respect of this facility. Refer to notes 3.5.2 and 4.4.
  • The Group has a financing facility with Rand Merchant Bank Limited and Investec Bank of R1.92 billion (2018: R1.92 billion). This facility is restricted for use by the 3G Mobile Group. Drawdowns were made during the year and the utilised portion of the facility at year-end amounted to R1.669 billion (2018: R1.514 billion).
  • The Group is in the process of negotiating a renewal of Facility A.

Pledges, guarantees and sureties

  • The shares in 3G Mobile and its subsidiaries have been pledged as security for the R1.92 billion Rand Merchant Bank Limited and Investec Bank facilities. Blue Label Telecoms and The Prepaid Company have issued guarantees for this facility. The guarantees are included in the sureties detailed above.
  • The Company and a subsidiary company issued a cross-surety in respect of an overdraft facility in the amount of R19.85 million (2018: R19.85 million) in favour of FNB, a division of First National Bank Limited (FNB). This facility was unutilised as at 31 May 2018. In addition, the Company and four of its subsidiaries issued a cross-surety in the amount of R1.3 million (2018: R1.3 million) in respect of credit card facilities granted by FNB.
  • Guarantees to the value of R936.8 million (2018: R614.4 million) are issued by the Groups bankers in favour of suppliers on behalf of the Group. The Group does not have access to this portion of its facilities while amounts owing to suppliers are outstanding.
  • A cash backed guarantee to the value of R48.2 million (2018: R37.8 million) has been issued by the Groups bankers in favour of RBL Bank on behalf of the Group. The Group does not have access to this cash while the guarantee is in place. A financial guarantee contract liability of R48.2 million has been raised in the Groups statement of financial position at year-end. Refer to note 3.6.3.