Bharti shares fall, Zain assets deal weighs

Bharti shares fall, Zain assets deal weighs

New Delhi: Bharti Airtel shares fell more than 2% on Friday on concerns that a debt-funded $9 billion deal to buy the African assets of Kuwaiti telecom Zain may stretch the Indian mobile operator’s financials.

New Delhi-based Bharti said late on Thursday due diligence on the deal to buy Zain Africa BV, a company incorporated in the Netherlands, is complete, and expected to sign definitive agreements with Zain soon, echoing what the Kuwaiti group said the previous day.

The acquisition would give Bharti access to 15 countries in Africa.

“The (Zain Africa) deal is extremely good from a long-term point of view, but the market generally does not like such deals because they could stretch the balance sheet," said Ambareesh Baliga, vice president at Karvy Stock Broking.

Bharti shares were down 2% at Rs307.40, in a Mumbai market up 0.4%. The company’s shares fell as much as 2.7% earlier in the session.

Bharti and rival Reliance Communications were the only two benchmark index components that gave negative returns in 2009 as a price war clouded their growth outlook, even as the broader market jumped 81%.

“We are buyers at Rs290 and sellers at Rs320 and that is the range I see the stock moving in," Baliga said.

At 10 times enterprise value to EBITDA (earnings before interest, tax, depreciation and amortisation), Bharti is paying a rich price for a group of loss-making assets on a continent full of operational challenges, analysts say.

Bharti is borrowing up to $8.5 billion to pay for the acquisition just as it gears up for third-generation (3G) operations in its home market, which will cost billions in licence fees and equipment.

The financing is estimated to lift Bharti’s debt to EBITDA ratio to more than 2 times, from 0.4 times before the deal.

The Economic Times newspaper said on Friday Bharti had formed two special purpose vehicles in the Netherlands and Singapore to execute the purchase.