Securing funding is a stress full exercise, but there is some good news

One of the biggest focus areas in the business recue profession in the wake of the Comair saga is how turnaround professionals go about securing funding for their clients who are facing financial distress.

 Industries that will no doubt suffer from the Comair fall out are the hotel and tourism industries. Consumers are already under pressure financially, so a twice yearly visit to the cost was perhaps reduced from a weekly stay to a weekend. Now that Comair is liquidated, holiday makers will need to drive to their destination. And with the petrol price being what it is, hotels and tourism operators are facing tough times ahead.

Cliffe Dekker Hofmeyr recently published an opinion piece which points out that determining that there is a reasonable prospect of saving a company is not as easy as it seems. Creditors will be reluctant to commit funding to a business rescue effort that will drag on for two years where liquidation is the only possible outcome.

Does this mean that there is zero chance of securing funding once a company becomes financially distressed? There are positive signs that this is not the case.

Zapper may be valued at $1 billion as it seeks capital

News24 recently published a Bloomberg article which points out that South African start-up Zapper is considering options to raise capital, including a stake sale, that could value the South African start-up at nearly $1 billion, according to people familiar with the matter.

The article points out that the Cape Town-based mobile payments business hired Ernst & Young as advisers on a potential deal, the people said, asking not to be identified because the information is still private. Zapper may also consider a combination with a strategic bidder, they said.

“Management is excited by future opportunities, underpinned by an innovative technology roadmap,” a Zapper spokesperson said in response to questions about a potential deal. Interested parties place “us in excellent standing for ongoing and future discussions,” the person said, declining to comment further.

The article adds that African startups attracted a record $5 billion in fundraising rounds last year as investors backed firms trying to fix the continent’s thorniest problems, such as insufficient banking infrastructure. Fintech companies have expanded rapidly over the past few years, with several attaining “unicorn” status with valuations of more than $1 billion.

Zapper, started in 2014, operates a mobile payments platform with about 250 000 customers and 65 000 merchants. It’s solution enables quick settlements use QR code and URL technology and the use of data insights to award discounts.

Cell C moves closer to recapitalisation

Another News24 article points out that there is good news on the horizon for mobile operator Cell C.

the article points out that Cell C lenders have voted in favour of a compromise cash out offer of 20c for every R1 of debt, bringing the company’s recapitalisation closer to fruition, it was announced on Tuesday.

Cell C’s described the latest development as a “critical milestone in the financial restructuring and recapitalisation” of its business.

The article adds that the company’s major shareholder, Blue Label Telecoms, now expects the recapitalisation process to be finalised by late July.

Cell C and its shareholders have over the past two years been working on the cash injection plan for the operator which was hit by liquidity challenges that saw Blue Label, which owns a 45% stake in the firm, write down the carrying value of its Cell C investment to zero.

The company is saddled with a debt of around R7.3 billion.

The article points out that, in January 2020, Blue Label Telecoms announced that the network provider had defaulted on interest and capital repayments related to the respective bilateral loan facilities between Cell C and Nedbank, China Development Bank Corporation, the Development Bank of Southern Africa and the Industrial and Commercial Bank of China, which were due in January 2020.

Key lessons

It is good news that a company like Zapper can be optimistic about its chances of securing the funding that it needs, and it is good news that Cell C will receive the funding that it needs to recapitalise the business.

A common thread in both cases is that both Zapper and Cell C have business models that are underpinned by the adoption of innovative technology that will be key to their future operational models. For Zapper, it is contactless payments and for Cell C it is the development of 5G technology that will hopefully become available to more South Africans in the future.

This is the kind of innovation that will secure funding. The hotel and tourism industries have been under pressure for two years now and have had plenty of opportunities to embrace technology. Because of the rapid evolution of technology, it is not a crisis if hotels and tourism operators are late adopters of technology that will benefit their business.

Hotels and tourism operators need to look at what the demand is from the public and find out how they can adjust their business models to accommodate this. This will secure the funding that is needed to fund their business rescue plans or address their financial distress.