KUWAIT/NEW DELHI, Feb 16, (Agencies): Kuwaiti telecoms firm Zain said on Tuesday it would pocket around half of the proceeds from its planned $10.7 billion sale of African assets to Bharti Airtel and use the rest to pay off debt, sending its shares soaring. Zain, which released more details of the proposal as the Kuwait Stock Exchange lifted a two-day trading halt on its shares, said it expected to see up to $5 billion in returns from the deal after it pays off debt.

“If the deal goes through Zain will be a winner and will concentrate on Arab countries. They will have liquidity for other opportunities,” said Mustafa Behbehani, director at Gulf Consulting Co in Kuwait.
Zain’s plans for the cash underscored how far the Kuwait-based firm extended itself with acquisitions in Africa and how the proposed sale to Bharti will give it a possible warchest to consolidate in the Middle East.
Richard Barker, analyst at Credit Suisse, said that a $5 billion profit was possible, depending on three things.
“Firstly, they get the full price. Secondly, they actually get the deal and thirdly, the refinancing of other debt facilities,” he said.
The company has spent some $12 billion on its African operations since 2005 alone and is keeping its Sudan and Moroccan interests if the Bharti sale goes through.
According to some estimates, Zain has around 1.8 billion Kuwaiti dinars ($6.2 billion) in debt to pay down.

In a hint that a dividend payout is likely, Zain’s former chief executive, Saad al-Barrak, who still heads its Saudi Arabian unit, said Zain will have more than doubled up on its initial investment of $3 to $4 billion in Africa with the Bharti sale and that shareholders had wanted to cash out.
Bharti Airtel confirmed on Monday it is in exclusive talks to buy Zain’s African assets, excluding Sudan and Morocco.
The deal marks one of the biggest cross-border transactions ever in the Middle East and a turning point for the third-biggest telecoms operator in the region.
Zain shares surged to a 15-week high after the Kuwait bourse lifted a trading halt, climbing 9.3 percent to 1.18 dinars, while shares in Bharti Airtel extended Monday’s losses by a further 4.5 percent to 273 rupees as investors gave a thumbs down to the proposed deal.

Finance
Bharti is likely to finance nearly all the deal’s purchase price with foreign currency loans, three people familiar with the matter said on Tuesday.
The move by Bharti, which is 30 percent-owned by Singapore Telecommunications Ltd, follows two failed attempts to buy South Africa’s MTN Group in a $24 billion deal.
Bharti has been hunting for emerging market assets as its home turf becomes fiercely competitive. New entrants into the world’s fastest-growing mobile market have triggered a vicious price war which has seen some call charges slashed to a fraction of a US cent.
Zain said the deal includes a $150 million break fee, payable by either side, if the deal fails. After a history of failed deals for both sides, some doubts linger as to whether the deal will go through. A major Zain shareholder said in September it would sell a 46 percent to an Indian-Malaysian consortium in a deal that never materialised.

And Zain Nigeria, its biggest single business by revenue in Africa, is still embroiled in ownership disputes with South Africa-based Econet Wireless Holdings and local minority shareholder Broad Communications.
Separately, Zain Saudi Arabia, which is 25-percent owned by the Kuwait-based group, said it would seek to raise $1.14 billion through a share issue and convert $577 million in debt into shares.
Kuwait’s Zain said the expected returns from the deal would enter the firm’s books in the second quarter of 2010.
Kuwait’s Zain telecom said on Tuesday it expects to make returns of up to five billion dollars from selling its operations in Africa to India’s Bharti Airtel for $10.7 billion.
Under the agreement, Bharti is to pay $10 billion when the deal is completed and the remaining $700 million one year after it is signed, the company said in a statement on Kuwait Stock Exchange’s (KSE) website.
The sale of operations in 15 African nations will increase company shareholders’ equity by nine billion dollars, it added.
Zain’s operations in Sudan and Morocco are excluded.
“After paying certain commitments, the company expects to achieve returns of up to five billion dollars,” the statement said.

Following the announcement, Kuwait’s bourse lifted a freeze on the company’s shares that was imposed on Sunday. Its share price immediately shot up by 9.3 percent.
The market capitalisation of Zain, which accounts for just under 16 percent of KSE’s total market value, also rose from $16.1 billion on Thursday to $17.6 billion.
The company said the agreement has a penalty clause of $150 million to be paid by the party that revokes the deal.
The issue of distributing the profits from the sale as dividends will be decided at the company’s general assembly, Zain said.
Zain’s board of directors will hold exclusive discussions with Bharti Airtel until March 25 to conclude the deal, which is still subject to due diligence and customary regulatory approvals.
The agreement was approved unanimously by the company’s board of directors that includes a representative of the state, which owns a 24.6-percent stake, indicating the Kuwaiti government’s support for the sale.
Zain entered the African market in 2005, buying the assets of Dutch firm Celtel for about $3.5 billion.
Later, Zain made key acquisitions that extended its presence to new African countries, including Nigeria, and also expanded in the Middle East with investments exceeding $12 billion.
Zain regionally operates in Bahrain, Iraq, Jordan, Lebanon and Saudi Arabia as well as Kuwait. The proposed sale will reduce Zain’s customer base to under 30 million subscribers as more than 60 percent of its existing clients, numbering 72 million, are in Africa.

If concluded, the deal will virtually end years of an ambitious expansion drive led by former CEO Saad al-Barrak, who resigned earlier this month and was replaced by Nabil bin Salamah.
Barrak, who was appointed in 2002, had hoped to make the company one of the top 10 global telecom firms by 2012.
But his plans met with snags in Saudi Arabia and most of the African countries where it operates, which cut deeply into Zain’s profits.
At present, it is the third largest telecom firm in the Gulf after Saudi Telecom and Etisalat in the United Arab Emirates.
The Board of Directors of Mobile Telecommunications Company KSC, ‘Zain’, after its meeting on Feb 14, 2010, issued a resolution to accept a proposal received from Bharti Airtel Limited (“Bharti”) to enter into exclusive discussions until 25 March 2010 regarding the sale of its African unit, Zain Africa BV (“Zain Africa”). This proposal does not include Zain’s operations in Sudan or its investment in Morocco.

Proposal
Bharti’s proposal implies an enterprise value of approximately  $10.7 billion with $ 10 billion to be paid upon closing whereas the remaining $ 700 million will be paid one year after the conclusion of the deal. There is a break up fee of $ 150 million applicable to both parties. Upon successful conclusion, this transaction would reflect an equity value of approximately $9.0 billion for Zain Africa.
After the repayment of certain liabilities, Zain expects net proceeds of up to $ 5 billion taking into consideration that Zain Group anticipates the expected proceeds when realized to be reflected on the company’s profit and loss during the second quarter of this year. Any decisions to distribute dividends or not reverts to the recommendation of the Board of Directors and the ratification of the General Assembly.
Bharti’s proposal is currently subject to due diligence, customary regulatory approvals and signing of final transaction documentation. There can be no assurance that a transaction will be consummated.