June 9, 2010 / 3:20 AM / 9 years ago

Bharti closes $9 billion Zain Africa deal

NEW DELHI/KUWAIT (Reuters) - Bharti Airtel (BRTI.BO) has completed its $9 billion acquisition of African operations from Kuwait’s Zain (ZAIN.KW) in a deal that makes the Indian firm the world’s fifth biggest cellphone company by subscribers.

Bharti aims to have 100 million subscribers and $5 billion a year in revenue in Africa by 2012/13, Manoj Kohli, chief executive of its international unit, said on Tuesday.

Currently Zain Africa has 42 million subscribers and an annual revenue of $3.6 billion.

Zain said in a statement on Tuesday it has received $7.87 billion from Bharti and will receive a further $400 million within 12 months after completing other formal requirements. It will also receive another $700 million after one year of the deal closing, as agreed in March.

In return Bharti gets the Kuwaiti company’s mobile operations in 15 African countries, making it India’s second biggest overseas acquisition after Tata Steel’s (TISC.BO) $13 billion buy of Corus in 2007.

The Indian telecoms market leader is facing ferocious competition at home and betting on opportunities in Africa are worth the risks of operating there, analysts say, even though some regard the deal’s total enterprise value of $10.7 billion including the assumption of $1.7 billion debt as a full price.

The acquisition, which takes Bharti’s subscriber base to 180 million in 18 countries, brings tough financial and management challenges for a company battling to defend its lead in its home market, analysts say.

A big challenge will be to streamline operations across the 15 different countries in Africa, raise the revenue and turn around the loss-making assets.

Reviving growth in Africa is a “big agenda,” Kohli said.

For Zain profits from the Bharti deal will be booked in the second quarter, Chief Executive Nabeel bin Salama said, and a dividend will be paid in 2011, with Zain’s board to recommend a dividend of 200-240 fils per share from deal returns. The company is not in talks for further asset sales, he added.


Bharti, which is 32 percent owned by Singapore Telecommunications Ltd (STEL.SI), looked to Zain for building a major presence in Africa only after it twice failed to finalize tie-ups with South Africa’s MTN Group Ltd (MTNJ.J), the continent’s biggest operator.

“We were fortunate that we got a second chance, and a better chance,” Sunil Mittal, chairman of Bharti Airtel, said.

The deal with Zain still encountered obstacles, including a dispute about the minority ownership of Zain’s operations in Nigeria, the biggest market in the deal, but Bharti said on Tuesday it had settled a dispute with one of Zain Nigeria’s minority shareholders, Broad Communications Group.

Oba Otudeko, who controls Broad Communications, will be made chairman of the Nigerian operations.

Another firm, Econet, which owns 5 percent of the Nigeria unit, has been seeking to overturn a 2006 deal whereby Zain — then called Celtel — bought a majority stake in Nigerian mobile operator Vee Networks Ltd, now Zain Nigeria.

Mittal said Econet has had no contact with Bharti, but he did not see Econet posing a problem for operations in Nigeria.

Econet, however, said in a statement on Tuesday the dispute was not yet resolved and that it was not party to any agreement between Zain and Bharti.

Bharti secured debt of up to $8.5 billion from a clutch of lenders to fund the Zain deal and may have to spend more to expand networks that analysts say have been under-invested in for years.

Bharti recently paid about $2.6 billion for acquiring 3G licenses in India and will have to pay more once an auction for wireless broadband radio spectrum is completed.

Shares in Bharti closed down 3.8 percent at 257.80 rupees, in a Mumbai market .BSESN that fell almost 1 percent.

Bharti was advised by Standard Chartered (STAN.L), Barclays (BARC.L), SBI Group (SBI.BO) and Global Investment House. Zain was advised by UBS UBSN.VX.

Standard Chartered, Barclays, SBI and Bank of America Merrill Lynch (BAC.N) are among Bharti’s financiers for the deal. (Additional reporting by Sanjeev Choudhary; Writing by Pratish Narayanan; Editing by Greg Mahlich)

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