CELL C RECAPITALISATION: CELLSAf RAISES RED FLAGS.

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1 FOR IMMEDIATE RELEASE: Public Statement, issued on behalf of the Board of Directors, CellSAf (PTY) LTD Johannesburg, South Africa 23 August 2017 CELL C RECAPITALISATION: CELLSAf RAISES RED FLAGS. Not a done deal. The recently-announced restructuring of Cell C, involving Net 1 and Blue Label Telecoms, is far from a done deal. The restructuring amounts to a blatant attempt at corporate capture, and is likely to collapse under regulatory scrutiny. This is the warning issued by CellSAf, the broad-based black economic empowerment consortium which founded Cell C 16 years ago, along with the now-bankrupt Middle-Eastern conglomerate, Saudi Oger. After more than two years of obfuscation, secret negotiations and numerous contraventions of the Companies Act, Cell C management, Net 1 and Blue Label announced the conclusion and approval of the recapitalisation transaction on 07 August Acting as though the deal was a fait accompli, this was followed, on 21 August, by the announcement that Kuben Pillay and Larry Nestadt have been appointed to the Board of Cell C as Chairperson and Deputy Chairperson respectively. In fact, the proposed restructuring is non-compliant and faces a number of legal and regulatory hurdles. Faced with regulatory and public scrutiny, the true motives and beneficiaries of the proposed transaction will be revealed. These revelations, combined with a series of violations of Cell C s license conditions, several South African laws and regulations, will likely capsize the deal, leaving its backers to rehabilitate their reputations and CellSAf to pick up the pieces at Cell C.

2 Compromised, from start to finish. The proposed transaction is compromised on multiple levels: It does not comply with various provisions of the Companies Act, the Electronic Communications Act or the Competition Act. The sponsors of the transaction have not complied with the mandated regulatory processes relating to changes in control of a License, and they are therefore in breach of the specific requirements, regulated by the Independent Communications Authority of South Africa (ICASA). The sponsors have not complied with the requirements relating to a merger of this nature, and potentially face an investigation by the Competition Commission relating, inter alia, to the prior implementation of a large merger. The transaction requires approval by the Financial Surveillance Board (FSB) of the South African Reserve Bank (SARB) and Cell C is currently facing scrutiny by SARS, relating to VAT, thin capitalisation and transfer pricing. This transaction will further impact the audit of Cell C s affairs, underway since June The processes undertaken in negotiating and announcing the transaction appear to flout the rules of several stock and bond exchanges, potentially exposing the participants to regulatory action both in South Africa and elsewhere. The deal falls foul of broad imperatives and the anti-fronting prescriptions of the South African Broad-Based Black Economic Empowerment (B-BBEE) Act. The deal was negotiated behind closed doors and appears motivated purely by the self-interest of the participants. The process illegally

3 excluded CellSAf from decision-making, involved multiple undeclared conflicts of interest; and breaches of fiduciary obligations; and, was approved by improperly-constituted Boards of Directors, relying on irregular resolutions. CellSAf has launched a High Court Application to have the resolutions and agreements set aside. The matter will come before the Court in the near future. By continuing to misrepresent the status of the transaction to the market in order to mask their own, reckless and negligent conduct, Cell C management, Net 1 and Blue Label are exposing themselves and their shareholders to significant risks and costs, as well as exposing the entire sector to unnecessary and potentially damaging instability. Not in Cell C s interest. In addition to fatal procedural and regulatory defects, the proposed deal doesn t benefit Cell C or South Africa. In fact, contrary to the public statements by participants in the deal, the restructuring appears to have been expressly designed to benefit Cell C management, Net1 and Blue Label, to the detriment of the company and its stakeholders. There was no imminent threat of liquidation of Cell C, nor were any attempts made to determine whether Cell C was in a distressed situation or to follow due process in identifying the best possible outcome for Cell C. The recapitalisation does not save jobs - instead, Blue Label and its associates have been taking jobs away from Cell C, its franchisees, distributors, WASPs and other major suppliers for over two years and would continue to do so if the deal were implemented. Should the transaction not pass regulatory muster, it will be left to Cell C's original shareholders to pick up the pieces and protect jobs. Despite being allocated 70% of the Company under this scheme, the R7.5 billion invested by Blue Label and Net 1 and the R2,500 (two

4 thousand five hundred rand) invested by the 4 members of Cell C's Management does not reduce Cell C's purported R23 billion debt to R6 billion. In fact, it is 3C Telecommunications ("3C"), the original 100% shareholder of Cell C, which now includes CellSAf and Cell C staff (90% of whom are HDI), who are expected to inherit R9 billion of Cell C's debt via three new SPVs. The intention is clearly to saddle 3C, CellSAf and Cell C staff with debt, whilst future returns are funneled to new shareholders. The transaction provides positive shareholder value only to the new shareholders, while leaving 3C and Cell C staff with massive negative value that is unsustainable. Even based on the implied valuation of R12.2 billion (implied by Blue Label s acquisition of 45% for R5.5 billion), 3C's residual 30% shareholding in Cell C would be valued at R3.67 billion, well below the new R9 billion in debt it has been forced to "uplift" from Cell C, which has to be added to 3C's existing debt of R15.5 billion. Cell C's historically disadvantaged (HDI) ownership has not increased to more than 30% as claimed. In fact, careful scrutiny of the deal reveals that HDI shareholding will reduce from a mandatory, licensed condition of 25% (legally held by CellSAf), to less than 20%. The only way in which this would not be the case is if the entire recent placement of shares by Blue Label (for R2.75 billion) turns out to be for the benefit of HDIs. This does not appear to be the case. In fact, the beneficiaries of the proposed deal, who stand to rake in billions of Rands, are the white, privileged majority shareholders of Blue Label Telecoms, the foreign-owned Net1, the handful of white males in Cell C s management team and established financial backers (including Investec Bank and Rand Merchant Bank). A better deal. CellSAf is confident that this blatant attempt to hijack Cell C will be shunned

5 by South Africa s courts and regulators, paving the way for an appropriate, compliant, legal and transparent capital restructuring that enhances the value of Cell C and its legitimate shareholders. CellSAf will continue to work with regulators and other partners, both in South Africa and elsewhere, in order to expedite this process. Released by: Dr. Nomonde Mabuya Company Secretary: CellSAf (PTY) LTD Released on behalf of the Board of Directors Further information: Helene Nieuwenhuis helene@cellsaf.biz +27(83) ADDITIONAL INFORMATION: CellSAf (Pty) Ltd. Company Registration No 1999/04289/07. CellSAf is a consortium of 33 businesses and social organisations representing historically disadvantaged South Africans and whose beneficiaries comprise a large proportion of the country s population. The consortium was constituted in 1999 as a business entity to take advantage of the bid for South Africa s 3rd mobile license. CellSAf beneficiaries include a number of organisations, including the Congress of Traditional Leaders of South Africa (CONTRALESA), National Movement of Rural Women (NMRM), South African Taxi Organisation (SATACO), MK Military Veterans Organisation (MKMVA), and numerous others representing small-tomedium sized enterprises (SMMEs), women and youth-owned technology start-ups, the disabled and other marginalised groups. CellSAf

6 was the country s first, truly broad-based, black economic empowerment initiative. Cell C s empowerment credentials contributed significantly to Cell C winning the license bid and was viewed as a means to empower previously disadvantaged South Africans through access to spectrum, a national asset. CellSAf, which initially held a 40% non-dilutable stake in the License, contributed 40% of the initial equity ($98 million) and 40% of Cell C s pre-bid and start-up costs (approximately R200 million). CellSAf settled all debt, interest and taxes incurred in raising this initial capital by disposing of 15% of its stake in Cell C and a portion of its loan account to third parties with the approval of ICASA in CellSAf s reduced 25% ownership of 3C Telecommunications (and indirectly of Cell C) as well as a minimum 25% control of 3C Telecommunications and Cell C s boards of directors was made a license condition and published in the Government Gazette by ICASA in These conditions can only be altered with the prior, written approval of ICASA. CellSAf may be contacted at info@cellsaf.biz END