MUMBAI, INDIA The shares of Indias top telecom company Bharti Airtel opened strong on bourses here Wednesday, a day after it sealed a $10.7 billion deal to acquire the African assets of Kuwaits Zain.
The bluechip, among the 30 scrips that are part of the sensitive index Sen of the Bombay Stock Exchange, opened at Rs.312.10 and soon moved up to Rs.316.50, against the previous close at Rs.310.95.
Some 10 minutes into trading, the scrip was up 1.33 percent at Rs.315.10.
The legally binding definitive agreement between the two groups was signed at Amsterdam late Tuesday, as the Dutch capital is the corporate headquarters for Zains African business.
The addition of the African business will make Bharti the fifth largest mobile phone service company in the world with 179 million subscribers, up two places. The deal covers 15 African countries in which Zain has a presence, excluding Morocco and Sudan.
Bharti Airtel is among Asias leading telecom service providers with operations in India, Sri Lanka and Bangladesh. As on Jan 31, it had the largest market share of 23.33 percent in Indias mobile telephony segment with 121.71 million subscribers.
Challenges to face
However, the deal is not without any challenges either. Bharti, which is 32 per cent owned by Singapore Telecommunications Ltd, selected Zain as its second choice for building a major presence in Africa after it twice failed to finalise tie-ups with South Africas MTN Group Ltd, the continents biggest operator.
The MTN deal, potentially worth $24 billion in cash and equity, envisaged Bharti getting a 49-per cent stake in MTN, and the South African firm and its shareholders 36 percent equity in the Indian telecom major. But it got stuck over policy issues.
Now, MTN will be a major competitor in the territories the Indian company is entering.
The Indian company is facing ferocious competition at home and betting opportunities in Africa are worth the risks of operating there.
As a cost of entry, it is paying what many regard as a full price 10 times enterprise value to earnings before interest, tax, depreciation and amortisation EBITDA.
The deal will give Bharti 42 million subscribers in 15 African countries, but must still be cleared by regulators.
In a sign of the challenges Bharti may face, the government of the small central African nation of Gabon weighed in on Monday against the deal, saying Zain Gabon had not complied with regulations and that it reserved the right to take “all necessary measures.”
Bhartis Sunil Mittal told CNBC TV18 in an interview over the phone from Amsterdam that he did not see any issue with Gabon.
“Not only Gabon, every other country I have no doubt there will be tremendous support,” Mittal said, adding only a few countries will require specific approvals, which will be filed “in the coming days.”
Minority ownership of Zains operations in Nigeria, the biggest market in the deal, is also in dispute.
South Africa-based Econet Wireless Holdings, which owns 5 percent of Zains Nigerian assets, is seeking to overturn a 2006 deal by Zain then called Celltel in which it bought a majority stake in Nigerian mobile operator Vee Networks Ltd, now called Zain Nigeria.
“Were happy to work with our local Nigerian partners. In the coming weeks well sit with them and assure them of our strategy for Nigeria,” Mittal said in the TV interview.
Bharti director Akhil Gupta told the channel that “sufficient indemnities” were in place in the event of any problems with the transaction.
Bharti was advised by Standard Chartered and Barclays Capital. Zain was advised by UBS and BNP Paribas.
With inputs from Reuters
IANS