Stock price has fallen 14.5% since the deal was announced.
With the stock price of Bharti Airtel plummeting by 14.5 per cent from Monday’s opening, after the announcement of its agreement to get into exclusive talks to buy out Zain Telecom’s Africa assets, the company was impelled by this evening to reassure investors.
It issued a statement that the total enterprise valuation of $10.7 billion it had agreed to pay would be adjusted against $1.7 billion of Zain’s debt. Investors apprehend that the payout might also mean Bharti absorbs a substantial portion of the $5-billion debt on Zain’s books. As a result, the stock price of Bharti, which fell by 9.2 per cent on Monday, fell again by 4.54 per cent, closing at Rs 272 in the stock exchange.
Analysts said the company was paying a very heavy price for the assets, at about 10 times its Ebitda (earnings before interest, taxes, depreciation and amortisation), higher than Bharti’s own valuation, which is 7.5 times its Ebitda.
In a statement in the evening, the company clarified that the total “agreed enterprise value of $10.7 billion is likely to result in a total payout of around $9 billion (which includes any loans payable by the operating companies to Zain Group), based on the estimated net debt of approximately $1.7 billion as on December 31, 2009.”
The statement also added, “It has been agreed that a sum of $700 million out of the total payable amount would be paid after one year from closing of the deal, whose deadline has been fixed for March 25.”
The release said the two parties “have also agreed to a break-fee of $150 million, payable by either side on terms and conditions customary to a deal of this nature and size”.
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Zain Telecom also issued a press release, confirming that according to Bharti's proposal, $10 billion will be paid upon closing of the deal and the remaining $700 million a year after conclusion of the deal.
Zain also said that upon successful conclusion of the deal, this transaction would reflect an equity value of approximately $9 billion for Zain Africa. After the repayment of certain liabilities, Zain Telecom expects net proceeds of up to $5 billion, and anticipates the expected proceeds to be reflected on the company’s balance sheet in the second quarter of this year, it said.
Banking sources say Bharti might raise money for the deal through a combination of a rights issue and debt to fund the deal. Sources said the company had already initiated talks with Standard Chartered, Barclays Bank and State Bank of India for credit lines.
The company is looking to raise a majority of the loan in foreign currency and is looking at a bridge loan, as well as other options of financing.
Analysts say Bharti, with a low-debt equity ratio, will not find it tough to raise finance. “The balance sheet of Bharti is under-leveraged as of now. Their net debt to equity ratio stands at 0.5 and they have room to increase debt,” says Harit Shah, analyst, Karvy Stock Brokers.
“Bharti has very strong cash flows from its Indian operations. They are under pressure, but the mobile business is generating cash,” says Hitesh Agarwal, Head of Research, Angel Broking.