Bharti Airtel moved closer to fulfilling its Africa ambitions after Kuwaiti telecom Zain’s board approved the sale of most of its African assets to the Indian firm for $9 billion, sources said.
Sale documents in the deal, which marks Bharti’s third attempt to acquire a substantial presence in Africa, will be signed within several days, two sources with direct knowledge of the matter said on Wednesday.
Michael Kovacocy, a London based telecoms analyst at Daiwa Securities, said: “It’s good for Africa, it’s good for African mobile, it’s good for African consumers, and it’s good for Bharti’s shareholders also.”
He added: “Bharti’s way of operating is perfect for Africa. Many African countries have low GDP per capita. The ability to run an operation on a shoestring is a valued commodity.”
Bharti, which failed twice to acquire Africa’s biggest mobile operator MTN Group, is desperate to expand in new markets as cut rate competition in its home market – the world’s fastest growing – squeezes margins and clouds its growth outlook.
Zain’s African businesses was considered a natural target for Bharti, which has thrived in an Indian market with low incomes and tariffs and a heavily rural population – characteristics shared by African nations.
Zain was keen to lock in what many regard as a high price offered by Bharti. The Kuwaiti group pulled back from an expansion spree last year and rejected an offer from France’s Vivendi for its African assets.
Kovacocy said: “They’ve paid a premium for those assets but it could be argued they can extract much more value than the seller of those assets could.”
Due diligence on the deal, which will extend Bharti Airtel’s reach into 15 African emerging markets, is complete, the sources said.
Spokesmen for Zain and Bharti declined to comment.
Bharti, 32 percent owned by Singapore Telecommunications, would pay a total of $9 billion in cash to Zain, including $700 million to be paid one year after the deal closes. The Indian firm will also assume $1.7 billion debt on the target firm’s books.
Bharti said on Sunday it had secured $8.3 billion in loans from a clutch of lenders, led by Standard Chartered, Barclays and State Bank of India. The deadline for exclusive talks with Zain expires on Thursday.
RK Gupta, managing director of Taurus Asset Management, New Delhi, said: “Bharti had signalled that the deal was on the right track by announcing it had tied up financing.”
He added: “So, now after Zain’s approval, only formalities are to be completed, it seems.”
Analysts have said the huge loan to finance the deal would be a drag on Bharti’s earnings and no immediate return is expected from the target African assets, which are currently loss making.
Also, a potential stumbling block is a dispute over the ownership of Zain’s Nigeria operations, of which it owns 65 percent.
Standard Chartered and Barclays were advising Bharti on the deal, while Zain was being advised by UBS. (Reuters)
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