New Delhi: Bharti Airtel shares resumed their fall on Friday after two days of mild gains, with a $9 billion potential deal for Kuwaiti telecom Zain’s African assets weighing on the stock.
Rating agency Standard & Poor’s put Bharti on “creditwatch with negative implications”, citing possible significant deterioration in Bharti’s cash flow protection measures and weakening of its business risk profile after it enters Africa.
Bharti and Zain are in exclusive talks until 25 March for the Kuwaiti firm’s operations in 15 African countries and have agreed for an enterprise value of $10.7 billion for the assets, including $1.7 billion debt in Zain Africa books.
At 0741 GMT, Bharti shares were down 1.6% in a weak Mumbai market. The leading Indian mobile operator’s market value has plunged 12%, or more than $3 billion, this week since it confirmed the deal to $22.7 billion.
Debt is seen as the most likely option for the Indian firm that currently has a low gearing, though media reports have also talked about other funding options such as a rights issue and a preferential allotment of shares to SingTel, which currently owns 32% in Bharti.
Bharti is yet to detail its funding plans.
The company is also keen to participate in India’s planned auction of third-generation spectrum, which analysts see costing between $1 and $1.5 billion for each phone firm to win pan-India radio waves.
S&P said a potential debt-funded acquisition and the spending for the 3G auction could increase the Bharti’s pro forma consolidated debt in 2010-11 to about 3 times Ebitda, from 1.4 times for the 12 months ended December 2009.
“Bharti’s business risk profile could weaken because of the macroeconomic and political risks associated with, and the lower profitability of Zain Africa’s operations,” S&P analyst Yasmin Wirjawan said.
S&P, however, noted the proposed deal would provide growth opportunities in Africa, which has a low mobile penetration than India, and that the combined entity with more than 163 million users would benefit from economies of scale.
Separately, the Economic Times reported Bharti may sell shares to SingTel to partly fund its purchase of Zain assets and avoid taking on too much debt.
Bharti’s shares were the second-worst performer in 2009 among the benchmark index that rose 81%, as a price war in India clouds earnings growth potential.