India’s Bharti close to signing $9bn Zain Africa buy

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Bharti Airtel is close to sealing its $9 billion purchase of most of Kuwaiti telecom group Zain's African assets, giving India's top mobile operator a foothold in the frontier market at its third attempt. 

Bharti, controlled by Indian billionaire Sunil Bharti Mittal, who started his career selling bicycle parts, is desperate to expand in new markets as cut-rate competition at home squeezes profit margins. 

The New Delhi-based company said on Thursday due diligence on the deal -- the second-biggest overseas buy by an Indian firm after Tata Steel's $13 billion purchase of Corus in 2007 -- is complete and it expects to sign definitive agreements with Zain soon, echoing what the Kuwaiti group said the previous day. 

Bharti, 32 percent owned by Singapore Telecommunications, will fight it out in Africa with Vodafone, France Telecom and with MTN Group, with which it tried twice to seal a $24 billion deal before talks collapsed in October. Zain's loss-making assets will give Bharti a footprint in 15 African countries, where average revenue per user of $7 is higher than Bharti's $5 in its Indian operations.  Bharti, with 125 million subscribers, has thrived on low incomes and tariffs and a large rural population and is keen to replicate its low-cost Indian model in Africa. 

"This deal is really what gives it a big lead over others. It's a step towards becoming a global player," said Romal Shetty, executive director of telecom at consultancy KPMG. "It's going to be challenging for Bharti no doubt -- managing operations in 15 different countries -- but the company has a long-term perspective." 

Bharti shares ended up 2.3 percent in a Mumbai market up 0.6 percent. The stock, valued at about $26 billion, was the second-worst performer in the benchmark index in 2009. So far this year Bharti is down nearly 5 percent. In India, where Bharti is battling newcomers such as Norway's Telenor and Tata Teleservices, partly owned by Japan's NTT DoCoMo, some call charges have been slashed to a fraction of a U.S. cent. Bharti posted its slowest profit growth in more than three years in October through December. 

"It's a good deal because Africa is the last bit left among emerging markets. And Bharti gets access to a lot of synergies in value-added services," said Girish Trivedi, a deputy director at consultancy Frost & Sullivan. For Zain, the deal proceeds will give it liquidity to pay off part of its debt and distribute a special dividend, said Mustafa Behbehani, director of Gulf Consulting Co in Kuwait. "It can pay its shareholders and concentrate on investment chances in Arab countries, especially in Syria and Iran," he said.  Some analysts have said Bharti is paying a high price for a deal with an enterprise value of $10.7 billion priced at around 10 times EBITDA, and say it may be a drag on its earnings. 

"We can know whether the valuation was right only after some time. So yes, there are opportunities, but there are also minefields and pitfalls ahead," said Deepak Jasani, head of research at HDFC Securities. Bharti would pay $9 billion in cash to Zain including $700 million to be paid a year after the deal closes. Bharti will also assume $1.7 billion debt on the target firm's books.  Bharti has secured $8.3 billion in loans from a clutch of lenders, led by Standard Chartered, Barclays and State Bank of India. Banking sources said Bharti was getting an attractive interest rate of around 200 basis points over Libor. 

Standard Chartered and Barclays are advising Bharti on the deal, while Zain is being advised by UBS.

India's Bharti close to signing $9bn Zain Africa buy

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