Zain board clears asset sale to Bharti Airtel

It is third time lucky for Bharti Airtel. After two aborted attempts to enter the lucrative African market involving South Africa's MTN group, India's cellular telecom major finally seems to have hit the target. The board of directors of Kuwaiti telecom operator Zain approved the sale of most of its African assets to Bharti Airtel, according to various media reports. The exclusivity period for talks between the two parties was scheduled to end on March 25. The due diligence on the deal is completed and the sale documents will be signed with in several days, the reports said.

Bharti Airtel said on March 21 that it had tied up the entire financing requirement of US$8.3bn with major international banks and India's SBI. Bharti Airtel has said it would pay a total US$9bn in cash to Zain, including US$700mn to be paid one year after the deal closing. Bharti Airtel is likely to seal the deal in a day or two. The deal, among the largest cross-border M&A transactions by India Inc., will give Bharti Airtel access to 15 African markets, sans Sudan and Morocco. The combined telecom entity will have more than 165 million subscribers with total revenue of US$13bn.

Bharti Airtel shares fell on concerns that a debt-funded deal to buy the African assets of Zain may stretch the Indian mobile operator's financials. At 10 times enterprise value to EBITDA (earnings before interest, tax, depreciation and amortisation), Bharti Airtel is paying a rich price for a group of loss-making assets on a continent full of operational challenges, analysts said. The financing is estimated to lift Bharti Airtel's debt to EBITDA ratio to more than 2 times, from 0.4 times before the deal. Bharti Airtel is borrowing heavily to pay for the acquisition just as it gears up for the upcoming third-generation (3G) operations, which will cost billions in licence fees and equipment.