Bharti-Zain deal news updates from Economictimes and many sources.
The board of Kuwait’s Zain Telecom has accepted a $10.7-billion (Rs 49,700 crore) offer from Bharti Airtel for the bulk of
its African assets, breathing new life into the Indian company’s cherished ambition of transforming itself into an emerging-market multinational. Sources said that Bharti would acquire 100% of Zain’s African operations. Sudan and Morocco would be out of the deal.
The deal would be an all-cash deal where Bharti would pay $700 mn to Zain by year end. Telecom Minister A Raja said that the Bharti-Zain deal was good for the Indian industry.
People familiar with the matter and Kuwait’s state news agency KUNA said Zain’s board had unanimously approved Bharti’s offer for all of Zain’s African assets except those in Sudan and Morocco.
“Bharti Airtel’s bid to buy Zain Africa assets in the Black Continent… proved successful… The bid involves up to $10.7 billion of investments,” KUNA said quoting statements by Zain officials issued after the meeting.
Representatives from both companies were not available for comment. Bharti has maintained complete silence since the news broke while all Zain said in a statement on Sunday was its board would discuss an offer, but said nothing about the identity of the suitor.
A banker familiar with the situation said the acceptance of the offer clears the way for Bharti to carry out a due diligence of the business before a final deal.
If the deal fructifies, the acquisition will give Bharti a firm foothold in a relatively untapped market and pit it in direct competition with MTN, with which it has tried and failed to merge twice. The operations spread across 15 African countries that Bharti is seeking to buy are grouped under an entity called Zain International.
Africa has nearly 450 million mobile phone users and a teledensity under 50%, still offering large room for growth for a company that is battling a fierce tariff war in India’s overcrowded mobile phone market.
If it buys Zain’s African operations, Bharti will be catapulted past China Unicom, Sweden’s TeliaSonera, and Germany’s T-Mobile to become the world’s seventh-largest mobile phone company by subscribers.
The banker said India’s largest phone firm is under-leveraged and has “enough borrowing capacity” and “financing flexibility”.At the end of December, Bharti’s net debt was just 0.1 times its equity and it had cash reserves of about Rs 7,600 crore.
Another banker with knowledge of the deal said Bharti is likely to maintain flexibility on payment depending on how the talks progress—it could be financed entirely by cash or be a part-cash and part-share deal. Bharti may even consider raising $500 million-$1 billion from the equity market and around $7.5 billion in debt.
Last year, when Bharti was in talks with MTN, it was looking to raise around $5 billion in debt. For the overseas component of the loan of $3-3.5 billion, it would have had to pay around 315 basis points above the benchmark London inter-bank offered rate plus fees of 50 bps. The pricing is likely to come down by over 50 bps now.
StanChart is currently Bharti’s sole banker while Zain is being represented by UBS in London. A third banker said the deal could be in two steps—the first involving the buyout of the African operations as well as a small stake in Zain itself. Subsequently, Bharti would become a majority holder of Zain and the total value of the deal would be around $10 billion.
Many analysts see the Bharti stock coming under pressure in the immediate future due to a strain on cash flow as well as Zain’s low operating margins.
“When Bharti had bid for MTN, which was a much larger firm with better operating margins, we had seen a similar trend,” said DD Sharma, senior VP, research, Anand Rathi Securities.
Romal Shetty, who heads the telecom practice at KPMG, said the valuation may appear slightly stretched right now, but Airtel needs a foothold in Africa. With Zain, MTN and Vodacom the only large players with African operations, Airtel’s choice is limited.
“There will be some strain on the balance sheet, but Airtel will become a global player with this acquisition. India is attractive in the long term, but not in the short term and Airtel needs to diversify at a time when not too many assets are up for sale,” he said. Mr Shetty was also of the view that being a pioneer of the low-cost, outsourced model of operations, Bharti can replicate it in Africa, where market conditions are similar.
Emeka Obiodu, a senior analyst in Ovum’s mobile strategy practice, wrote in a report earlier this month that the competitive landscape in Africa will only get tougher with the disappearance of the pent-up demand for rudimentary telecom services as operators have plucked most of the low-hanging fruit in their markets.
“Getting it right for the future relies heavily on a bedrock of cost leadership. As operators in India have shown, achieving a minimalist cost structure is the best foundation an operator in an emerging market can have.”