New Delhi: India’s Bharti Airtel, which has restarted merger talks with South Africa’s MTN, said on Tuesday it did not anticipate funding requirements for the deal would be onerous, but its shares fell sharply for a second day.
Fears of equity dilution and a stretched balance sheet knocked shares in Bharti down 5.1% to Rs770.40, worse than a 2.3% fall in the broader market and taking their losses over the past two days to 10.2%.
In Johannesburg, MTN shares had fallen 3.8% to 125.01 rand by 0943 GMT as investors questioned the value of the deal.
India’s finance minister Pranab Mukherjee welcomed the proposed deal, under which Bharti would pay cash and shares for 49% of the South African firm, and MTN and its shareholders would pay cash and stock for a 36% stake in the Indian firm
Brokerages estimate a net cash outflow of about $4 billion from Bharti in the deal, which would create one of the top global telecom firms with operations in Asia, Africa and the Middle East.
Bharti, which plans to fund the deal through cash and shares, on Tuesday said it had not yet decided how to raise any funds.
“We do not anticipate the funding requirements to be onerous,” the company said in an emailed response to questions sent by Reuters, without saying how much it expected to raise.
Banking sources told Reuters Bharti might raise $3 billion to $4 billion in debt if the merger talks succeed.
Bharti, which will issue new shares to part fund the deal, said on Monday its earnings-per-share would be diluted in the first year after the deal and pick up after that.
Singapore brokerage CIMB said Bharti’s balance sheet would not be overstretched by the net payment of $4 billion to MTN and its shareholders, as it could consolidate MTN’s accounts and use the African firm’s strong cash flows and balance sheet.
Bharti’s net debt to EBITDA ratio would increase to 0.74 after the merger from 0.25 currently, while net debt would be 1.9 times equity post merger from 0.25 times now, the brokerage said.
Finance minister on Tuesday said the deal was a welcome move, which one analyst said was “a vote of confidence” in its success.
India caps foreign investment in telecom companies at 74%, and the investments need to be cleared by the finance ministry’s Foreign Investment Promotion Board (FIPB).
“I think the deal should not face any major hurdles here. Still there are regulatory issues, they need FIPB approval,” said Harit Shah, a telecom analyst at Mumbai brokerage Angel Broking.