Net 1, the company behind Cash Paymaster Services that used to run SA’s social grant payment system, is considering selling its 30% stake in DNI, the largest wholesaler of Cell C starter packs in the country.
The JSE and Nasdaq-listed firm has framed the sale to generate additional liquidity to fund its other businesses.
Net 1 disclosed in its recently published annual report that on May 3, 2019, its wholly owned subsidiary, Net1 Applied Technologies South Africa or Net1 SA, entered into an agreement to grant a call option to DNI to acquire Net1 SA’s remaining 30% interest in DNI.
The controversial firm added that the option expires on December 31, 2019, but may be exercised at any time prior to expiration.
“The option strike price is calculated as R2.827 billion ($200.8 million, translated at exchange rates applicable as of June 30, 2019) less any special distribution made by DNI multiplied by Net1 SA’s retained interest (i.e. assuming no special distribution, the strike price for the 30% retained interest is R859.3 million, or $61.0 million, translated at exchange rates applicable as of June 30, 2019),” the company said.
Net 1 added that the call option may be split into smaller denominations, but Net1 SA cannot be left with less than 20% unless the whole remaining interest is disposed of.
“DNI may nominate another party to exercise the call option in the place of DNI, provided that the nominated party acquires call options representing at least 1.0% of DNI’s voting and participation interests,” the company informed investors.
“If we are unable to dispose of our entire, or a partial interest in DNI, in the short-term our financial position and cash flows may be adversely affected.”
In the year to end-June 2019, Net 1 incurred a loss of $5.8 million related to the reduction in its investment in DNI from 55% to 30%.
DNI “is the largest wholesaler of Cell C starter packs in South Africa”. However, CellSaf – Cell C’s empowerment partner – has argued that DNI is potentially much more than that. Blue Label Telecoms owns 45% of Cell C, South Africa’s struggling mobile phone operator.
Last month JSE-listed firm Blue Label Telecoms announced it will sell its shareholding in Blue Label Mobile to DNI 4PL Contracts Proprietary Limited (DNI).
In terms of this transaction, Blue Label will sell 85% of Blue Label Mobile issued shares and all claims on loan to DNI 809.
The price consideration payable by DNI to Blue Label in respect of the deal is R350 million.
DNI will also pay R100 million, which shall escalate at the prime rate of interest plus 2% (compounding annually in arrears) from the fifth business day after the date on which all suspensive conditions are met and the date upon which the board of directors of Cell C resolve that the mobile phone operator passes the solvency and liquidity test.
DNI’s business comprises of several separate entities that are primarily involved in the distribution of mobile phone starter packs, mainly on behalf of Cell C, said Net 1.
It added that DNI also provides funding for the expansion of Cell C’s mobile telecommunications infrastructure.
“If Cell C were to terminate any of these contractual relationships that have multi-year notice periods, it would have a material adverse effect on our results of operations, financial condition and cash flow as a consequence of the impact on DNI,” Net 1 warns.
“In particular our remaining 30% interest in DNI is likely to be worthless in the event that these contractual relationships are terminated.”
Net 1 had written down to zero the value of its stake of the embattled mobile network, Cell C, which recently reported an R8 billion loss in the year to June, hit by impairments.