fce bhartiairtel-zain deal 16feb10

8122019 Fce BhartiAirtel-Zain Deal 16Feb10

httpslidepdfcomreaderfullfce-bhartiairtel-zain-deal-16feb10 16



983090

bull African telecom market has scope for penetration If Bharti is able to implement its low tariff scheme there

successfully the deal could prove to be value accretive

bull Bharti gains access to at least three African countries where Zain enjoys a clear hegemony Zain commands

two-thirds of the mobile market in Niger Malawi and Chad

bull These markets also have operating margins in excess of 40 in line with Bhartirsquos India operations Further

with mobile penetration of less than 20 Bharti stands a fair chance to expand its footprint in these highly

lucrative markets

bull Moreover despite its poor financial performance in Africa Zainrsquos average revenue per user (ARPU) of $82 is

much better than Bhartirsquos $5 This means Bharti may be able to rake in profits from these markets if it

controls costs effectively

Major Issues in the Deal

bull Zains African business has $2 billion of debt on its books

bull Regulatory issues which were widely blamed as a deal-breaker in the BhartiMTN talks are not seen as a

major concern But legal disputes surrounding Zains Nigerian unit the biggest among its African assets

could potentially delay or disrupt a deal



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bull Bhartirsquos success with Zain will hinge upon how fast it is able to grow the African operations post acquisition

But this looks much more daunting This is because nine out of Zainrsquos 15 African markets are well penetrated

with more than 33 subscriber population

bull Further mobile penetration is exceeds 45 in five markets These include Ghana and Nigeria where Zainrsquos

operations are bleeding due to stiff competition from MTN which is the numero uno in these regions Zain is

also suffering losses in Uganda again a territory with 35 penetration and has MTN as the market leader

bull With substantial market penetration and MTN as a bigger competitor Bharti will find it very tough to turn

around Zainrsquos loss-making operations Zainrsquos African operations have posted a loss of $111 million in nine

months ended September 2009

bull Zain is not as strong a player in the African region as its bigger peer MTN Bharti may have to compete head

on with its former acquisition target MTN in at least four makets

bull A dispute over the ownership of Zainrsquos crucial Nigerian unit as well as a legal offensive by a minority

shareholder could complicate for this deal



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Deal structure

This is an all-cash deal Bharti would give to Zain $10 billion within a month of signing and then $700 million

by the year-end There is also a $2-billion debt on the balance sheet of Zain Africa which they will assume

Besides there are two loans on Zain Africarsquos balance sheetsmdasha $17-billion loan and a $23-billion loan given

by Zain International When Bharti gives them the moneyZain will pay off the $23-billion loan given by Zain

International and only the $17-billion loan will remain on Zain Africarsquos balance sheet

Source of funds

bull Bharti will most likely finance the deal through a combination of debt and equity After excluding $300 million

that it has agreed to pay to acquire Warid of Bangladesh Bharti will still have liquid assets of $13 billion

bull Assuming that it raises $1 billion in equity and another $84 billion in debt its debt lever will jump from

current 01 to 11 times its equity DE ratios for global telcos that operate in multiple markets share a wider

range For instance UKrsquos Vodafone with operations in 20 countries has a DE of 05 For Spainrsquos Telefonica

(22 countries) it is 27

bull If Bharti decides to fund the acquisition entirely through debt its DE ratio will be at 12 which may not

strain its balance sheet This still looks comfortable for a company like Bharti which operates in a capital-

intensive but cash-positive business

bull The company is likely to finance nearly all the deals purchase price with foreign currency loans



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Conclusion

There is a structural shift on the telecom space because the growth rates are topping out and over the last few

quarters the operating profit margins for most of the players have been under pressure The direction which

Bharti took was to address that concern to sustain growth rates over the next few years However the

valuations that one is paying are little bit on the higher side However Bharti is going to be generating pretty

good amount of cash flows over the next few quarters Bhartirsquos key strategic move gives a strong presence in

the high potential African telecom market However we are optimistic that if Zain starts performing the deal

could reap returns to Bharti in the long term

________________________________________________________________________

Disclaimer

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or

sale of any financial instrument or as an official confirmation of any transaction The information contained

herein is from publicly available data or other sources believed to be reliable but we do not represent that it is

accurate or complete and it should not be relied on as suchFirstcall India Equity Advisors PvtLtd or any of itrsquos

affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any

inadvertent error in the information contained in this report This document is provide for assistance only and is

not intended to be and must not alone be taken as the basis for an investment decision



983094

Firstcall India Equity Research Email ndash infofirstcallindiacom

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B Prathap IT

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Neelam Dubey Diversified

Firstcall India also provides

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Offers Offer for Sale and Buy Back Offerings

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983090

bull African telecom market has scope for penetration If Bharti is able to implement its low tariff scheme there

successfully the deal could prove to be value accretive

bull Bharti gains access to at least three African countries where Zain enjoys a clear hegemony Zain commands

two-thirds of the mobile market in Niger Malawi and Chad

bull These markets also have operating margins in excess of 40 in line with Bhartirsquos India operations Further

with mobile penetration of less than 20 Bharti stands a fair chance to expand its footprint in these highly

lucrative markets

bull Moreover despite its poor financial performance in Africa Zainrsquos average revenue per user (ARPU) of $82 is

much better than Bhartirsquos $5 This means Bharti may be able to rake in profits from these markets if it

controls costs effectively

Major Issues in the Deal

bull Zains African business has $2 billion of debt on its books

bull Regulatory issues which were widely blamed as a deal-breaker in the BhartiMTN talks are not seen as a

major concern But legal disputes surrounding Zains Nigerian unit the biggest among its African assets

could potentially delay or disrupt a deal



983091
















983092

Deal structure






Source of funds













983093

Conclusion








________________________________________________________________________

Disclaimer










983094



B Prathap IT

A Rajesh Babu FMCG





















Joint Ventures







Tel 022-2527 25102527 607725276089 Telefax 022-25276089





983091
















983092

Deal structure






Source of funds













983093

Conclusion








________________________________________________________________________

Disclaimer










983094



B Prathap IT

A Rajesh Babu FMCG





















Joint Ventures







Tel 022-2527 25102527 607725276089 Telefax 022-25276089





983092

Deal structure






Source of funds













983093

Conclusion








________________________________________________________________________

Disclaimer










983094



B Prathap IT

A Rajesh Babu FMCG





















Joint Ventures







Tel 022-2527 25102527 607725276089 Telefax 022-25276089





983093

Conclusion








________________________________________________________________________

Disclaimer










983094



B Prathap IT

A Rajesh Babu FMCG





















Joint Ventures







Tel 022-2527 25102527 607725276089 Telefax 022-25276089





983094



B Prathap IT

A Rajesh Babu FMCG





















Joint Ventures







Tel 022-2527 25102527 607725276089 Telefax 022-25276089



fce bhartiairtel-zain deal 16feb10

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