The Bharti-Zain deal is finally inching close to the finishing line. Company officials state that the deal is likely to close soon. Bharti has already started dipping into various lenders’ pockets to complete its purchase of Zain’s African assets. The operator is also in the process of obtaining approval from each of the 15 African countries where Zain operates in the continent.
Before signing the $10.7 billion deal, Bharti Airtel had announced that it had finalised $8.5 billion of funding. On completion of the deal, the operator would be required to pay another $700 million to Zain after a year, while taking on a load of $1.7 billion debt associated with the African assets.
The telecom major has approached several banks to provide financial support, namely, Standard Chartered Bank, Barclays, SBI Group, ANZ, BNP, Bank of America-Merrill Lynch, Credit Agricole CIB, DBF, HSBC, Bank of TokyoMitsubishi UFJ and the Sumitomo Mitsui Banking Corporation. These banks will lend Bharti $7.5 billion.
The State Bank of India has provided the largest chunk of funding worth $1.5 billion, of which $500 million is a dollar loan. Standard Chartered, the lead arranger for the dollar loan, will lend $1.3 billion, and Barclays, the joint lead adviser, will provide $900 million. A group of eight international banks will bring in the remaining $4.8 billion.
Of course, the deal is a win-win situation for both parties. For Bharti, the acquisition will give it a foothold in the relatively untapped African market.
According to analysts, the combine will generate revenues of $13 billion and earnings before interest, taxes, depreciation and amortisation of around $5 billion.
On Zain’s part, the sale has its shareholders smiling all the way to the bank. The company expects to pocket up to $5 billion from the sale after paying down its debt. However, speculations were rife on what it intended to do with the windfall, with analysts predicting that it would either invest or pay out to shareholders.
Zain Telecom chairman Asaad alBanwan put an end to the suspense at the company’s annual general meeting (AGM), saying, “Regarding the surplus [returns from the sale], a major portion of it will be distributed to shareholders, in addition to our future investment operations.”
He added that the company was open to new investments in the Middle East. The timing, in fact, couldn’t have been better. In a separate development, Zain shareholders had approved the board’s recommendation to distribute a cash dividend of 170 fils per share for 2009, which excludes distribution from the sale of some of Zain’s African units to Bharti.
One key investor, the Kuwait Investment Authority (KIA), however, played spoilsport. KIA objected to the dividend, questioning whether Zain had enough cash in hand to pay it and stating that it would harm the shareholders’ interests. While the chairman admitted that the group may need shortterm financing, he did say that the company had the ability to distribute 170 fils through cash as well as financing options.
Understandably, Zain is happy that Bharti has begun drawing funds to pay for the African assets. Simon Simonian, a telecom analyst at Dubaibased Shuaa Capital, while talking to a business daily stated that holding the AGM as scheduled demonstrates that Zain is highly confident of the deal closing shortly and is hopeful of receiving the proceeds soon.
Clearly, Bharti Airtel’s African sojourn is about to begin on solid ground. For Zain, the sale seems to be working to bail the company out of potential tight spots.
Jyotika Oberoi
