Wednesday, February 6, 2013

BHARTI: ZAIN DEAL

After having failed to acquire Africa’s MTN, Sunil Mittal has now set his eyes on Zain to enter Africa. But his best bets could be much closer home than he thinks.

However, things are expected to be a little different this time as it would not be as complex a deal as the one that was being worked out with MTN. There is no doubt that Africa is considered to be a lucrative market from a wireless operator’s point of view but according to some analysts, Bharti might be coughing out a whopping $10.7 billion (making it the second largest cross border deal after Tata Corus, which was $13 billion deal) and the deal would swell Bharti’s subscriber base to about 170 million from the current tally of 125 million. Further, the company would become one of the top ten service providers globally. Another positive side of this particular deal is that out of the 15 markets that Zain operates in, it is a market leader in 10 countries and the second largest in the other four. “This particular acquisition for Bharti comes at the cost of $200 per subscriber as opposed to $450 that Vodafone paid when it launched its operations in the country or the average of $500-$600 that has been paid for other operations that have happened in the past couple of years. It seems to be a strategic acquisition for the company in the long terms,” shares the India head of one of the leading AMCs in the country.

On the flip side, Bharti Airtel is planning to fund the deal with the help of mid to long term loan financing amounting to $9 billion, (rather than issuing fresh shares), which, according to many analysts, would have a negative impact in the short term on the balance sheet of Bharti Airtel. There were also talks doing the rounds that Bharti Airtel might be thinking of a rights issue but that does not seem to be on cards for now. A lot of renowned agencies such as Standard & Poors and Fitch have both placed Bharti on negative credit watch after talks of the deal were made public. Even the stock markets have reacted to the same and the scrip has depreciated by 12% (from February 15-26). The top honchos of the company are predicting that after the deal goes through, the entity would be able to boost total annual revenues to the tune of $13 billion and EBITDA of $5 billion in about a year of operations and from there on, build on both revenue market share and EBITDA margins going forward.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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