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Zain Approves African Asset Sale To India’s Bharti

25 March, 2010

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 READY WITH FINANCING

Bharti, 32-percent owned by Singapore Telecommunications (STEL.SI: Quote, Profile, Research), 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.


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Zain Approves African Asset Sale To India’s Bharti

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