New Delhi: Bharti Enterprises Ltd chairman Sunil Mittal says clarity on how the Bharti-Zain deal is being funded will emerge as early as next week. In an interview with CNBC-TV18, Mittal said that he was confident of closing the deal by the end of April. While all options are on the table, debt could be the simplest, fastest way forward. Edited excerpts.
Confident buyer: Bharti chairman Sunil Mittal says the proposed acquisition will give his company complete control over Africa operations. Madhu Kapparath / Mint
Analysts are calling it a forced marriage. I know you came out and tried to allay investor apprehensions on that.
Forced because they see that there is no commercial, strategic or cultural fit as far as this is concerned. They feel MTN was a better proposition, of course, in terms of valuations.
I think Zain is a significantly better deal than MTN was for Bharti.
Why would you say that?
Complete controlled management, and an Indian model which we can actually go and test for ourselves and brand. In MTN, none of these would have been possible. It would have been a partnership; we would have been able to influence the local management to do certain things, but not control it. The management would have been MTN. So from that point of view, I would certainly say without doubt that this is a much better, cleaner deal for Bharti.
Crisil has just put out a report which has put Bharti on ratings watch with negative implications on account of the debt you are likely to take on because of the Zain deal.
I haven’t seen the report, but I won’t be surprised. Anybody who is going to assess this is going to see a very large potential debt coming into the company and until we go out and explain our whole plan and how we are funding and what are the funding plans, I think this is pretty natural.
So what is the debt that you are comfortable with because you have been trying to allay investor apprehension on how this deal is going to be funded and structured.
We are currently one of the only telecom companies in India, perhaps around the globe, which has no debt and on a net-net basis we are positive as you know and given our Ebitda (earnings before interest, taxes, depreciation and amortization) levels, there is enough potential to raise debt, so debt is coming from all around. Everyone is very keen to fund it, how much, what terms, give it a few more days.
What is the preferred option—debt or equity?
All we know is that there is money available, so how we want to pick it up we have many ways to do this and that is precisely what is being discussed at the moment. I would say by the end of next week we will have a clear picture.
Rights issue, preferential shares or promoters diluting stake? Have these options been considered?
I would not know and the treasury team is working on multiple options. Right from the last two years, funding has not been an issue. When we went out to do MTN one or MTN two, different structures have come forward, so let’s see what new structure comes in.
One of the other concerns is that this deal is going to dilute EPS (earnings per share). What is your own estimate because the concern really is on account of the interest cost.
We are on a very good wicket here, the funding is likely to be available at a very good cost.
That depends if you are doing on rupee or dollar and that depends on good pricing much better than even the last round, so I think there shouldn’t be any cause for worry in terms of debt being expensive. If anyone in India can raise debt at very good terms it is us. So just be patient and I would say maybe another week’s time.
So has the due diligence begun?
Will it be completed by March 25th?
We don’t have a choice. We would try to do it early and you will need to go to the last date because once you do the semi-finals, the last issues which need to be resolved, so 25th March is a very aggressive timetable and there are multiple teams that are working and I think we will achieve our goal in this time frame.
Are you talking to all the vendors—perhaps even Chinese vendors—to bring down costs? And in terms of capex (capital expenditure), how much you need to invest further to be able to beef up and strengthen operations?
I would say we need more time, but all of our capex providers are being spoken to and all of them are very excited. Most of the people who provide us our equipment in India also service Zain, and the Chinese are among them. So all of them will be happy to jump on board and grow with us, and the comfort here is it’s the same equipment, the same technology, the same vendors.
In the case of MTN it was meant to be a tripartite deal with SingTel also being a major or significant party to that transaction. How will SingTel play out? They have made no bones about the fact that they want to enter Africa and that if that happens through Bharti, they are fine with that.
We are working very closely with SingTel. SingTel is an integral part of Bharti. Whatever we do, whatever we plan is thoroughly discussed with SingTel. Their inputs are taken at every stage. In fact, I would say without their support in due diligence and many other areas, it will be tougher for us to immediately go on.
So, will this be a tripartite deal as well in that sense?
SingTel is a part of Bharti, so they come with us everywhere that we go. So SingTel, as a partner of Bharti, will be there.
A pre-agreed price that you will probably issue some equity to SingTel on account of this deal?
I think those discussions are absolutely speculative.
No preference issue as far as SingTel is concerned?
No, we haven’t even had any discussions. That will depend on what the final arrangement of funding comes to.
But could SingTel possibly be funding part of this deal as well?
At the moment there is no plan.
Take us through who you have on as bankers? For instance, we have heard Standard Chartered is on board. Is that the only bank advising you?
I think this is again something which will be announced hopefully Monday or Tuesday. One name I can certainly confirm is Standard Chartered, which has been a very strong supporter of Bharti.
How quickly can we expect you to turn things around at Zain’s African assets?
As quickly as anybody else can do. I personally believe that we have demonstrated this country’s rollout, distribution, etc. one can do it very well, so I would say we can do it faster than what is being done in the past.
So the estimate that the deal maybe EPS dilutive to the tune of 10% or more in the short term is an exaggerated concern?
Those numbers will fall into place once the whole due diligence is done. We know exactly where we are, what the 2010-11 plans are for Zain that will determine where the EPS position is going to be.