London/Johannesberg: South Africa’s MTN is in talks with a group of lenders to secure a $3.5 billion syndicated loan to back its proposed merger with India’s Bharti Airtel, banking sources close to the deal said.
The two telecom companies are in exclusive talks over a deal that could lead to a full merger, creating the world’s third biggest wireless group with more than 200 million subscribers and combined revenue of $20 billion.
Analysts said the fact the company was seeking financing may indicate the talks are progressing ahead of a 31 July deadline.
“This just shows an intent on MTN’s part to ensure that they fulfill the conditions necessary for the proposed merger to go-ahead,” Chris Wood, a fund manager at Prudential Portfolio Managers said.
MTN shares shares closed 0.35% higher at rand 129.90 by 8:34am, in line with 0.22% firmer JSE Top-40 index of blue-chip stocks Bank of America-Merrill Lynch and Deutsche Bank are advising MTN on the deal.
“(The loan) means they’ve got banks on their side willing to lend the money to do the deal. I don’t think MTN will struggle to raise funding for the deal. Their gearing and debt are pretty low,” said a Cape Town-based analyst who asked not to be named.
MTN, Africa’s biggest mobile phone operator by subscribers, and India’s leading cellular firm Bharti Airtel have agreed to talk only to each other until the end of July. Some analysts said they did not expect a deal to be clinched by then.
“They will probably update shareholders on progress and we might see some change in the valuation, but I don’t think it will be a done deal,” a Johannesburg-based analyst said.
Bharti and MTN are mulling an initial deal worth over $23 billion, under which Bharti would pay cash and shares to end up with 49% of MTN, after MTN pays cash and stock for an effective 36% stake in the Indian firm.
Even if MTN and Bharti agree on a proposed transaction, shareholder approval would be required and several major MTN shareholders have said they would reject a tie-up based on terms unveiled so far.
South Africa’s state pension fund Public Investment Corporation (PIC), which holds about 21% of MTN, supported revived talks in principle but believes there is “room for improvement” on the price.
Other smaller MTN investors such as Coronation, Stanlib and Polaris Capital have said Bharti needs to sweeten its offer although Lebanon’s Mikati family - which holds about 10% - has already supported the transaction.
“The real issue is going to be to take the deal to respective shareholders and especially MTN investors,” said an analyst.
Sunil Mittal, Bharti’s chairman, told Reuters last month the Indian company was not working on sweetening the deal, but did not rule it out.
MTN declined to comment about the financing.
“At this stage the company has nothing further to add .... The discussions are still in progress,” the company said.
Bharti has been talking to banks about a $5-6.5 billion loan to back the merger, banking sources told Reuters Loan Pricing Corp.