Telecom operators Bharti Airtel and Zain confirmed on Thursday that they were finalising definitive agreements that could be signed soon, a day after the Kuwaiti company’s board agreed to sell its African assets in 15 countries to the Indian company for an enterprise value of $10.7 billion (Rs 48,685 crore).
“Further to our announcement regarding the acquisition of Zain Africa, we would like to report that due diligence has been completed. Bharti is now working with Zain towards finalising definitive agreements, which will address all key terms and findings arising out of due diligence. Definitive agreements are expected to be signed soon. Upon signing, the parties will move towards obtaining required approvals. Bharti has already secured the entire financing requirement of $8.3 billion for this transaction,” Bharti said in a statement.
Earlier in the day, Zain issued a similar statement confirming that its board met in Kuwait on Wednesday and approved Bharti’s bid to buy its African assets. This deal will make Bharti-Zain the seventh largest operator in the world in terms of subscribers.
“As of September 2009, Zain Africa had 42 million subscribers with revenue of $2.7 billion for the nine months. As of February 2010, Bharti’s subscriber base was 124.6 million,” an Ambit Capital report said.
Analysts are of the view that dealing with 15 regulators and managing geopolitical risks will be a challenge.
“The minutes of usage (MoU) for Zain in African countries is around 100 per subscriber. MTN, which also operates in similar geographies, has an outgoing MoU of 55 for Nigeria and 119 for Ghana. Historically, the Indian market has shown high elasticity to drop in tariffs. If the African market does not witness similar elasticity, it would be difficult to achieve revenue growth,” Ambit Capital said.
KPMG’s executive director Jaydeep Ghosh said that to replicate the successful outsourcing model similar to India in Africa would not be easy for Bharti. “Bharti has replicated the low-cost model through outsourcing in India, but, depending upon different geographies, it will not be easy,” he added.
“Apart from challenges in Zain’s African market and EPS dilutive nature of the transaction in the short term, the company’s financials will also remain under pressure due to stiff competition in the domestic market,” Ambit Capital said.
Source:http://www.mydigitalfc.com/companies/zain-deal-brings-new-challenges-bharti-643
