Bharti shares rise after Zain buyout deal announced

Friday, March 26, 2010, 9:29 by Business Editor

With Bharti finalizing a mega $10.7-billion deal to buy out African operations of Kuwaiti firm Zain, the investors are an elated lot. The take over of Zain by the Indian telecom major would mean that its profitability would rise on a long-term basis.

The definitive agreements to be signed soon,  Bharti will have a bigger playground in an under-penetrated zone as soon as it takes the African plunge.

The deal having come about, analysts believe that the average revenue per user of Zain is quite high and that justifies its current valuation by Bharti. Further, the new combined entity would boost shareholder value in the long term. As if heralding a new profitability scene for the company and its investors, Bharti shares have zoomed 11 per cent since February 15 – that is ever since the two companies had begun parleys for a possible takeover.

With the deal poised to go down in corporate history as the second largest overseas acquisition by an Indian company, after Tata’s take over of Corus for over $13 billion, investors are a cheery lot. The buyout will also see Airtel making a foray into Africa, the fastest growing market. The two businesses combined will be among the top 10 telecom firms in the world with an over 165- million subscriber base and total revenue of $13 million, says a report.

The deal is seen as bringing in a rare consolidation in the highly competitive sector and Bharti would have a major challenge to face in terms of how successful it would be in attempting to integrate its operation with Zain.

Bharti  was able to finalize the deal with the money for funding arranged  from a handful of foreign banks and the State Bank of India. The Standard Chartered Bank is said to have committed the highest amount of $1.3 billion, followed Barclays with $0.9 billion. An amount of $7.5 billion debt would be dollar-denominated and the remaining about USD 1 billion will be in rupee loan from SBI.

The Zain acquisition is Bharti’s successful attempt after it had twice failed to take over another South African giant MTN two years ago.

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