Notes to the financial statements

5.2.1

Investment in Cell C

As at 30 November 2023, BLT through its wholly owned subsidiary, The Prepaid Company (TPC), holds 49.53% participatory interest in Cell C.

Critical accounting judgements and assumptions

Shareholding in Cell C

TPC received additional shares from Cell C for a nominal amount.

Following the recapitalisation of Cell C, TPC has a shareholding and voting rights of 49.53% in Cell C, as well as additional interests of 13.66%, derived as follows:

BLT holds 49.53% of the shareholder voting rights of Cell C and is able to appoint four out of 12 on the Cell C Board of Directors, where each director has one vote. It has been determined that the Cell C Board makes the decisions about the activities that significantly affect the returns of Cell C (the relevant activities).

As a result of loans made by TPC to SPV1 and SPV4, TPC is entitled to obtain additional shares comprising 13.66% in aggregate in Cell C at any time from the special purpose vehicles (SPVs) in settlement of the loans. Should TPC wish to obtain any of these additional shares, and hence the corresponding voting rights, the Group's external legal advisors have advised that it can only do so lawfully with the prior approvals of the Competition Commission and ICASA - as acquiring additional voting rights would result in TPC obtaining control over Cell C. According to the Group's external legal advisors, it is unlawful to give effect to a transaction that requires the approval of the Competition Commission before such approval is granted, and doing so could result in the transaction being set aside. Furthermore, the granting of the regulatory approvals is not a formality or within TPC's control, hence TPC does not, on its own, have the practical ability to obtain any additional shares (and voting rights). Therefore, management has concluded that TPC's rights under the loan agreements to obtain additional Cell C shares are not substantive until such approvals have been granted. Consequently, the potential voting rights of 13.66% have been excluded from the assessment of whether the Group has control over Cell C.

SPV1 and SPV4 hold the voting rights attached to the aggregate 13.66% equity interest. Even though TPC bears the economic risks and rewards of these shares (subject to upper limits of the amounts repayable under the loans), it does not have the ability to direct the way in which the corresponding voting rights in Cell C are exercised. These decisions lie with the Directors of SPV1 and SPV4, which are appointed by Albanta Trading 109 Proprietary Limited (Albanta), over which BLT has no control.

Although the SPVs will only benefit from the aggregate 13.66% equity interest in Cell C to the extent that they realise more than the amounts repayable to TPC under the loans, whether they exercise their Cell C voting rights in line with the way that TPC exercises its 49.53% Cell C voting rights or not, management is of the view that this would not affect the SPVs in any way. Similarly, whether the SPVs vote in line with TPC or not, management is of the view that this would have no impact on whether TPC elects to obtain the additional shares in settlement of its loans, subject to receiving the requisite regulatory approvals. Since management is of the view that the SPVs do not have any incentive to exercise their Cell C voting rights in the way that TPC would want them to such that TPC can rely on them to do so, it has been concluded that the SPVs are not de facto agents of TPC. Furthermore, Albanta holds other shares (5.50%) in Cell C, therefore management believes that Albanta would exercise all its Cell C voting rights in the same way and management is of the view that there is no incentive or reason why Albanta would necessarily vote in line with TPC.

Based on historical attendance at Cell C shareholder meetings, the fact that the shares of Cell C are not widely held (there are only nine shareholders currently; six if one recognises that SPV1, SPV4 and SPV5 are all subsidiaries of Albanta), and that Gramercy and Nedbank now hold 7.53% and 6.09% of Cell C, respectively, management is of the view that there is currently no basis for concluding that TPC has de facto control of Cell C at a shareholder level. Furthermore, it is the Memorandum of Incorporation (MOI) of Cell C that enables TPC to appoint only four of the 12 Directors, and changes to the MOI require shareholder approval of at least 82% including that of Gramercy and Nedbank, for as long as they are permitted to appoint a director to the Cell C Board. Therefore, even if TPC had de facto control at a shareholder level, it could not, on its own, change the MOI to enable it to appoint the majority of the Directors. Management has thus concluded that the Group does not have control over Cell C and continues to exercise significant influence. Therefore the Group continues to account for Cell C as an associate.

Valuation of Cell C

In the prior period, as a result of an indication of a further reversal of the previous impairment due to the recapitalisation transaction, an internal valuation was performed in order to determine the value-in-use of Cell C based on cash flow projections incorporated in its five-year business plan. Assumptions relating to the business, the industry and economic growth were applied. Cash flows beyond this point were then extrapolated, applying terminal growth rates. The discount rates used are pre-tax and reflect specific risks related to Cell C. The valuation incorporated the effects of the recapitalisation, which was effective end September 2022. As at 30 November 2023, there was no indication of a further reversal of the previous impairment and no further adjustment was required. For the inputs relating to the previous valuation, refer to the annual financial statements as at May 2023.

The sensitivities were stress tested at 30 November 2023 and no further adjustments were required.

Exposure to Cell C

The Group's exposure to Cell C is as follows:

There is indirect exposure to Cell C as a result of the subscription sharing arrangement.

Summarised balance sheet of Cell C

The Group's share of accumulated losses not guaranteed

Summarised income statement of Cell C

(i) an airtime sale and repurchase – lenders;
(ii) an airtime sale and repurchase – other third parties;
(iii) the issue of Class A Preference Shares; and
(iv) the issue of Class B Preference Shares.

TPC was required to purchase, by way of four further quarterly payments of R300 million (incl. VAT), with a face value of R498 million (including VAT), additional prepaid airtime, with each such quarterly payment payable at the beginning of each calendar quarter. The first such quarterly payment will be made at the beginning of the 13th month following the recapitalisation of Cell C and subsequent payments will be made at the commencement of each quarter thereafter. The first payment of R300 million (Incl. VAT) was made in October 2023.

Of the carrying value of inventory as of 30 November 2023, R660 million (excluding VAT) is restricted as it is held by the funders and other third parties under the airtime sale and repurchase agreements which form part of TPC's borrowings in connection with the Cell C recapitalisation, as detailed above. As a result of TPC's repurchase obligation, the airtime stock that was sold to the funders has continued to be recognised as TPC's inventory, and the repurchase obligation has been recognised as borrowings. As airtime inventory is repurchased it becomes unrestricted and is available to be sold. During the following 12 months, TPC is required to repurchase this balance of the restricted stock.

Included in the carrying value of inventory as of 30 November 2023 are amounts that have been purchased to date (and not yet sold) by TPC from Cell C as part of the Cell C recapitalisation as detailed above. TPC has the right to sell this airtime stock without restriction before 28 September 2024. However, there are certain restrictions regarding TPC's ability to dispose of any of this airtime that is still on hand at that date (which carrying value of airtime management believes will be negligible), these restrictions fall away from 28 March 2026 or earlier should certain trigger events occur.