MTN deal with Cell C knocks shares in South Africa's Telkom

Reuters
Updated
FILE PHOTO: A shopper walks past an MTN shop at mall in Johannesburg

JOHANNESBURG (Reuters) - South Africa's MTN Group <MTNJ.J> has signed an expanded roaming agreement with the country's third-biggest carrier Cell C, pushing shares in its owner up while dragging those of rival Telkom <TKGJ.J> down.

The deal puts a dampener on Telkom's proposed takeover of Cell C, which is majority owned by Blue Label Telecoms <BLUJ.J> and is struggling under the weight of hefty debts. The buyout bid was announced on Friday.

It will see an existing agreement between MTN and Cell C, which gives the struggling carrier access to MTN's network in some areas of the country, expanded nationwide.

The MTN agreement strengthens Cell C’s position after months of efforts to sort out its finances and questions over how it will survive. Blue Label, its owner, has written its holding in the carrier down to zero.

Cell C CEO Douglas Craigie Stevenson said in a statement the MTN agreement will help Cell C to manage its network capacity requirements in a more cost-effective manner. The deal spares Cell C having to spend large sums to ensure national coverage.

"The roaming agreement is transformative for Cell C," Stevenson said.

Telkom shares were down 3.36% by 1302 GMT, recovering some ground after losing more than 5% following the news. Meanwhile Blue Label shares were up 6.27% and MTN shares were down 0.48%

In a statement, Telkom said it expects the roaming agreement and its terms will have been considered in the context of Cell C's discussions with Telkom.

For MTN, meanwhile, the deal means the opportunity to earn more revenue from Cell C, which helped push its enterprise and wholesale revenue up 8.4% to 13.4 billion rand in the 2018 financial year.

In the six months to June 30, however, MTN opted not to recognize revenue amounting to 393 million rand from the Cell C deal due to the company's financial problems.

"This [the agreement] is aligned to MTN's strategy to further develop the group's wholesale business and will allow both MTN and Cell C to harness greater efficiencies... while supporting a more sustainable and competitive industry," MTN said in its statement.

(Reporting by Emma Rumney; editing by Uttaresh.V, Jason Neely and James Drummond)