"Bharti Will Have To Raise Debt In The Short Term"

Indian telecom major Bharti Airtel is in talks to pick up a stake in MTN, Africa's largest telecom group. The talks revive a deal which Bharti was forced to abandon last year owing to differences with the South African company over control. VCCircle talks to Vivek Gupta, Partner, M&A Practise at BMR Advisors on the reaction to the deal. Gupta said the deal is good for Bharti as it provides access to the markets and is reasonably valued. Bharti will have to raise debt on to its balance sheet in the short term to service the  cash payout to MTN shareholders. Excerpts : 


What does the deal mean for Bharti Airtel?

It’s a very good deal in the sense of the market access. So from the point of view of where they were looking at falling ARPUs and stagnating subscribers, they get access to a large base of subscribers and more importantly an access to the overseas market, which they were wanting to grow in.


From the valuation stand point, the deal looks reasonable. It looks fairly valued. Its not as if they are overpaying MTN. From the immediate cash flow point of view, the deal will involve cash payout by Bharti because they are paying out cash to the shareholders of MTN. So I think in the immediate short term there will be debt that will need to get raised at the Bharti balance-sheet level to be able to pay down cash that will be required for the transaction.


What the deal means for the larger India telecom industry?

We saw R-com wanting to do this earlier so the larger Indian players will obviously, in an attempt to get growth, want to move into these geographies. And no one has made any secret of it in the past. R-com was very serious on the MTN deal and Bharti was also involved in it earlier.


From that point of view, I think this is a deal which the larger players in the Indian telecom sector, are wanting to get into. Potentially, R-com could be looking at something overseas but if it has to do any equity dilution, then it has to handle the issue in agreement between the ADAG group and the Reliance Industries group. So I think telecom players would want to look overseas but its very unlikely a huge number of deal may happen overseas because these will be one or two large deals only. 


What do you think can work for Bharti, which didn’t work for Reliance?

The Reliance scene was somewhat different, I think in the sense hat it had an added dimension of complication in terms of the basic arrangement between the two reliance fractions. That was one added factor of complexity which Bharti didn’t have to contend with.


How big are the African markets and how would venturing into these markets affect Bharti?

It is a huge market and it is also a growing market. So, it would be obvious for one to grow in Africa, which would be a more growing market than the mature developed world where there are already a certain number of telecom operators where it’s a very stable state of busineB

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