KUWAIT/LONDON, March 24, (RTRS): Kuwaiti telecom Zain is about to sell most of its African assets to Bharti Airtel for $9 billion, finally giving the Indian buyer its much sought-after foothold in Africa’s fast-growing market.
Zain said on Wednesday it will sign the deal in the next few days, confirming what sources with direct knowledge of the matter told Reuters earlier.
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.
Billionaire Sunil Mittal’s Bharti wants to establish a meaningful presence in Africa after two failed bids to buy South Africa’s MTN, the continent’s biggest mobile operator.
Exclusive negotiations for Zain’s African assets expire on Thursday.

“It’s good for Africa, it’s good for African mobile, it’s good for African consumers, and it’s good for Bharti’s shareholders also,” said Michael Kovacocy, a London-based telecoms analyst at Daiwa Securities.
“Bharti’s way of operating is perfect for Africa. Many African countries have low GDP per capita. The ability to run an operation on a shoestring is a valued commodity,” he said.
Bharti declined to comment.
Indian markets were closed on Wednesday. On Tuesday, Bharti shares closed 3 percent down in a slightly positive Mumbai market. Zain stock rose 1.4 percent on Wednesday to a new 23 week high.
Bharti is desperate to expand in new markets as cut-rate competition in its home market — the world’s fastest growing — squeezes margins and clouds its growth outlook.
Zain’s African businesses was considered a natural target for Bharti, which has thrived in an Indian market with low incomes and tariffs and a heavily rural population — characteristics shared by African nations.
Zain was keen to lock in what many regard as a high price offered by Bharti and will concentrate after the sale on the Gulf and Middle East, Chief Executive Nabil bin Salama said last month.
The Kuwaiti group pulled back from an expansion spree last year and rejected an offer from France’s Vivendi for its African assets.
“I think Zain could still be quite an attractive company focused on a tighter geographic area,” Martin Mabbutt, a Nomura telecom analyst, told Reuters.
Daiwa’s Kovacocy said Bharti had paid a premium, but said it could be argued that the company could extract much more value from the African business than Zain.
Bharti, 32-percent owned by Singapore Telecommunications , would pay a total of $9 billion in cash to Zain, including $700 million to be paid one year after the deal closes. The Indian firm will also assume $1.7 billion debt on the target firm’s books.
Bharti 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.

Analysts have said the huge loan to finance the deal would be a drag on Bharti’s earnings and no immediate return is expected from the target African assets, which are currently loss-making.
Another potential stumbling block is a dispute over the ownership of Zain’s Nigeria operations, of which it owns 65 percent.
Standard Chartered and Barclays were advising Bharti on the deal, while Zain was being advised by UBS.
“In the first six months to a year Bharti will have to prove that it can manage the Zain assets as soundly as possible. It will have to see if it needs to restructure management at the different operations.”
“It will probably look to use local management as much as possible and look to be headquartered in Africa, unlike Zain.”
“A good place to set up a headquarters would be Kenya despite it not being the biggest but it’s a good hub with a relatively large Indian population.”

Shift
“I do not see a sudden shift in looking at new assets and selling off some of the operations immediately but I do think that will come in due course.”
“If you look at what they have acquired ... these are relatively small markets and they will want to enter larger ones.”
“They may also look to sell off some existing operations.”
“Bharti will look to bring in network sharing.”
“Bharti will also look to quickly start working its existing suppliers to roll out new networks and also content services. Bharti likes to keep the supply chain relatively small and as lean as possible.”
Michael Kovacocy, Telecoms Analyst, Daiwa Securities, London:
“Bharti’s way of operating is perfect for Africa. Many African countries have low GDP per capita. The ability to run an operation on a shoestring is a valued commodity.”
“They’ve paid a premium for those assets but it could be argued they can extract much more value than the seller of those assets could.”

“Africa is our favourite emerging market at the moment. At some point there will be a GDP uptick and the ability to extract more ARPU (average revenue per user).”
“It’s good for Africa, it’s good for African mobile, it’s good for African consumers, and it’s good for Bharti’s shareholders also. It’s a win-win-win situation for everyone involved.”
Nasser Al-Nafisi, General Manager, Al-Joman Center for Economic Consultancy, Kuwait
“The deal will bring Zain good liquidity which it will use to pay down debts, and to pay dividend to shareholders.”
“It is not a bad thing at all that it goes back to being a regional company, many have done so because of the global crisis. It is bowing to the storm.”
“It is still a large company by Gulf and Kuwaiti standards.”
R.K. Gupta, Managing Director, Taurus Asset Management, New Delhi:
“Bharti had signalled that the deal was on the right track by announcing it had tied up financing. So, now after Zain’s approval, only formalities are to be completed, it seems.”

“It’s a good buy for Bharti from a strategy point of view.
It’s a good deal in the long term. But their profitability will come under pressure because of the huge loan they are taking and they would need to make good for that by generating enough money from Zain operations. Bharti shares will come under pressure.”
Ambareesh Baliga, Vice-President, Karvy Stockbroking, Mumbai:
“It’s a very good deal for Bharti from its business point of view. From an analyst’s point of view it may look to be a little expensive. The deal will surely dilute Bharti’s EPS in the short-term, but after a couple of years I expect the financial benefits to start flowing in.”
“We still have a view that this deal is good for Bharti’s long-term business. The telecoms sector in India is certainly not going to grow as fast as it used to in the past and companies like Bharti have no option but to tap other markets.”
“Whenever a deal of this size happens, the market does not take it very kindly but I think a lot of negatives of the deal has already been priced in the Bharti shares.”