Zain deal could generate free cash flow of $11 billion for Bharti

Analysts suggest Zain deal high priced

Sanjeev Sharma & Bhaskar Hazarika

New Delhi: Telecom major Bharti Airtel’s $10.7 billion proposed transaction to buyout Kuwait-based telecom company Zain’s African assets could generate free cash flow of $11 billion in five years. Morgan Stanley report states, “The consolidated entity would address 1.5 billion population with over 164 million subscribers, with Ebitda 26 per cent higher than Bharti standalone, growing at 11 per cent per year (financial year 2010-2012E).

Analysts say that Bharti would be able to de-leverage itself in a couple of years. The report says the consolidated entity’s cash flows would be $13 billion in five years.

Bharti in an official statement said, “The total agreed enterprise valuation of $10.7 billion is likely to result in a total payout of around $9.00 billion (which includes any loans payable by the operating companies to Zain Group) based on the estimated net debt of approximately $1.7 billion as on December 31, 2009. It has been agreed that a sum of $ 700 million out of the total payable amount would be paid after one year from closing.”

Just after Bharti and Zain announced payment milestones, Econet Wireless, which holds 5 per cent stake in Zain’s Celtel Nigeria BV unit, has clearly opposed the deal, citing first right of refusal over the Nigeria operations. Official statement from Econet said, “It is currently pursuing arbitration proceedings against Celtel (now Zain) and others to challenge the transaction. Under the terms of the original VNL shareholders agreement, Econet had a right of first refusal over the stake, a right, which was denied in 2006. Econet made an application for interim measures to prohibit Celtel (now Zain), from selling, transferring, disposing of, dealing with or otherwise encumbering the disputed stake until such time as the Arbitral Tribunal has published its final award.”

According to Macquarie report, “The valuations look very expensive, in our view, even assuming no debt is being acquired by Bharti. This is a loss-making business at the PAT level, even while it makes an Ebitda margin of 31.4 per cent with average blended ARPU of $6.2. Bharti may be banking on significant improvements in capital expenditure efficiencies and better financing terms for this business, but quick comparisons with MTN suggest that this business is significantly inferior in terms of profitability, operating metrics and growth outlook.”

Bharti stock has fallen almost 14 per cent in the last two days.

Talking about regulatory hurdles Morgan Stanley states, “We suspect some licenses in Africa will face change of control reviews, but we do not see this as a major stumbling block for a potential deal. We are waiting on clarity on the Kuwait Investment Authority – a 24 per cent shareholder – position on the deal though in the past it has been supportive of such a transaction.”


© Financial Chronicle

Bangla Regulator sees no issues with Bharti bid

New Delhi, Dec 18 2009

Bhaskar Hazarika

The Bangladesh Telecommunication Regulatory Commission sees no legal barrier to Bharti Airtel picking up 70 per cent in Warid Telecom.

The commission secretary, Mahboob Ahmed, in an email communication to Financial Chronicle said, “According to the provisions of the Bangladesh Telecommunication Act, there is no legal bar on transferring shares of the company with the prior permission from the commission.”

Bharti has reportedly made a $300 million bid for a 70 per cent stake in Bangladesh’s Warid Telecom. This is the Indian company’s second bid to buy up a foreign telecom operator, after a failed attempt for a merger deal with South Africa’s MTN. Over four months of ‘exclusive talks’ and two extensions, the proposed $24 billion Bharti-MTN deal foundered on regulatory hurdles.

The Bangladesh regulator has sought details from Warid on the proposed stake sale to Bharti. The regulator is also likely to meet Bharti and Warid officials.

“We have asked for some information and documents relating to the sale. The commission will examine these will take a decision. The commission is expecting a meeting with Warid and Bharti officials as early as possible,” Ahmed said.

The commission’s move comes after the Dhabi group, which fully owns Warid, sought approval for going ahead with the deal.

A Bharti spokesperson said on Wednesday, “We have nothing more to comment on it.”

In 2008 Japan’s NTT DoCoMo paid $350 million to pick up 30 per cent in another Bangladesh operator, AKTEL, majority owned by Axiata of Malaysia.

Warid is the fourth largest among Bangladesh’s six telecom operators with 2.79 million subscribers at the end of October, when the total mobile subscriber base in the country was 51.4 million. The largest operator is the Grameen Phone with 22.30 million subscribers, followed by Orascom Telecom (12.27 million) and Axiata (10.99 million). The other two operators are PBTL and Teletalk.

© Financial Chronicle