New Delhi: Bharti Airtel shares rose more than 3% early on Thursday as it came closer to a $9 billion deal to buy Zain’s African assets after the Kuwaiti firm’s board approved the sale.
Zain said on Wednesday it would sign the deal in the next few days, confirming what sources with direct knowledge of the matter told Reuters earlier.
Bharti is expected to make an announcement as the deadline for exclusive talks between the two companies end on Thursday.
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“The reaction of the stock price reflects the deal being done at attractive financing terms. But how Bharti is going to benefit from it will only be known in the next 2-3 quarters,” said Deepak Jasani, head of research at HDFC Securities.
Billionaire Sunil Mittal who controls Bharti is desperate to expand into new markets as cut-rate competition in India, the world’s fastest-growing mobile market, squeezes margins and clouds its growth outlook.
Bharti, the leading mobile operator in India, has thrived on low incomes and tariffs and a large rural population — characteristics shared by African nations — and wants to replicate its Indian model in the 15 African countries where it is buying Zain’s assets.
But some analysts have said Bharti is paying a high price for the deal, with enterprise value of $10.7 billion at around 10 times EBITDA, and may be a drag on the Indian firm’s earnings.
”We can know whether the valuation was right only after some time. So yes, there are opportunities, but there are also mine-fields and pitfalls ahead.
We have to see what comes first,” Jasani said.
At 9.;30 a.m., Bharti shares were up 1.8% at Rs312.20 in a weak Mumbai market, having risen as much as 3.2% earlier.
The shares, currently valued at about $26 billion, were the second-worst performer among the benchmark components in 2009. In 2010, the shares are down 5 percent, underperforming the broader market that is down 0.4%.
Due Diligence Over, Funds in Place
Due diligence for the deal, the second-biggest overseas acquisition by an Indian buyer after Tata Steel’s $13 billion purchase of Corus in 2007, has been completed successfully, Zain said on Wednesday.
Bharti, 32% owned by Singapore Telecommunications, would pay $9 billion in cash to Zain, including $700 million to be paid one year after the deal closes. Bharti will also assume $1.7 billion debt on the target firm’s books.
The Indian firm said on Sunday it had secured $8.3 billion in loans from a clutch of lenders, led by Standard Chartered, Barclays and State Bank of India. Banking sources said Bharti was getting an attractive interest rate of around 200 basis points over Libor.
Standard Chartered and Barclays were advising Bharti on the deal, while Zain was being advised by UBS.