Bharti Airtel Ltd has acquired management and board control of Bangladesh’s Warid Telecom International Ltd. It will pay $300 million (Rs1,362 crore) for a 70% stake in the company by buying out existing promoters for a nominal consideration and by investing in fresh shares that will be issued at par.
According to an analyst with a domestic institutional broker, the fact that the erstwhile promoters were paid only a nominal consideration for forgoing control of the company clearly suggests that it is a distress sale.
Also, if one were to assume that the initial investment of $700 million in the firm was funded in a debt-equity ratio of 1:1, it further supports the view that the original promoters have taken a big hit on their investment. Their 30% stake is valued at $130 million, based on the valuation at which Bharti has acquired its stake. Coupled with the nominal consideration it has received, it will fall short of the original investment of $350 million. Of course, if one were to assume that the debt-equity ratio is 2:1, the extent of value erosion would be lower.
Even while there are signs that this is a distress sale, it’s not that Bharti has got a cheap deal. According to the analyst, Warid’s enterprise valuation on a per subscriber basis works out to a mere 15% discount to Bangladesh’s market leader Grameenphone Ltd. Warid’s subscriber base of 2.9 million is only about one-sixth that of Grameenphone’s. Another analyst with a foreign broker points out that the second largest player, Banglalink (a subsidiary of Orascom Telecom), broke even after crossing a subscriber base of 11-12 million. It’ll be a while before Warid reaches that stage and in that light the investment seems large.
Having said that, it must be noted that the $300 million investment is rather small for Bharti, which has a market cap of $27 billion.