Bharti Airtel, the country’s largest mobile telecom service provider, today announced completion of its deal to acquire the African assets of Kuwait’s biggest phone company, Mobile Telecommunications Company, also known as Zain, at an enterprise value of $10.7 billion (Rs 50,660 crore).
With this, Bharti enters 15 countries in Africa – to add to its existing operations in India, Sri Lanka, Bangladesh and Seychelles – and becomes the world's fifth largest mobile phone company by subscribers. It gets access to a population of about 470 million people from the Atlantic coast to the Indian Ocean, with more than a third of them carrying mobile phones. The combined business will have 180 million customers and generate earnings before interest, tax, depreciation and amortisation of $4.7 billion on revenue of $12.4 billion, according to Bharti.
This comes as Bharti’s earnings slid in India and it added customers at the slowest pace among the seven largest operators in the country.
Still, an unimpressed market drove Bharti’s stock down 3.77 per cent to Rs 257.80 today, probably reflecting concerns over the price of the deal – seen by some as high – and future profitability. “It might take a year or two for the company to make profits from this high-priced buy,” said telecom industry expert Mahesh Uppal. “Implementation of Bharti's low-cost model in Africa will not be easy as it is based on volumes. Some of the markets in Africa are small, so this model will have limited value. However, it needs to be seen how Bharti innovates in the African markets.”
The company, though, was ebullient at its press conference in New Delhi today, at which its top management held aloft a globe with Africa facing the audience. “A billion people, 10 times the size of India, it poses truly amazing opportunities to grow within the 15 countries, and we’re looking at more opportunities as we build and roll out Airtel in Africa,” said Chairman Sunil Mittal.
The purchase of Zain’s African assets will pit Bharti against Vodafone Group Plc, the world’s biggest carrier, and MTN Group Ltd, the continent’s largest operator. Bharti and MTN failed for a second time last year to complete a $23 billion merger.
The company has already paid $7.9 billion to Zain for the acquisition, which was announced in March this year.
While $400 mn more will be paid in the coming weeks after completion of some milestones, another $700 million will be paid after a year. Bharti will also take on $1.7 billion (Rs 8,000 crore) of Zain’s debts.
Bharti has raised debt from a consortium of foreign banks and State Bank of India, with the lead arranger and lead advisor, Standard Chartered Bank, committing the highest amount of $1.3 billion, followed by Barclays’ $900 million. Bharti recently paid $2.6 billion to the Indian government for acquiring 3G spectrum and will have to pay more after the ongoing auction for broadband wireless spectrum is completed.
Zain Africa will now be a 100 per cent subsidiary of Bharti International. “Becoming No 3 globally is not far away,” said Bharti Airtel’s CEO (International Unit) Manoj Kohli, who will head the African operations.
