5th airtel’s acquisition of zain

7/31/2019 5th Airtels acquisition of Zain

1/6


2/6

Some of the opportunities that are likely to accrue from the deal are as follows:

This deal provides Bharti the opportunity to apply its learnings, particularly its rural

strategies, to a large and developing market. In fact, a key argument favouring the deal is

that Africa is the only underpenetrated market in the world and is likely to evolve

multifold over the next few years. Its large population, coupled with low teledensity, will

provide considerable scope for Bharti to add new subscribers.

Zain's ARPU is 63 per cent higher than Bharti's Rs 250 per subscriber, as tariff rates in

Africa are ten times higher than those in India.

The total minutes of usage (MoUs) per subscriber for the combined Zain operations in

Africa are one-fifth of Bharti's MoUs of 446. Many analysts are of the view that Bharti

will be able to deploy its trademark "minutes factory" model, which will result in strong

market share accrual to the new company.

Cost of acquisition: US $ 10.7 billion

Year: 30 March 2010

Steps involved in the process:

Bharti Airtel has formed two special purpose vehicles (SPVs) in the Netherlands and Singapore

to execute the $10.7 billion deal with a minimum financial risk. The SPVs, whose dealings will be

guaranteed by Bharti, will own the African assets of Kuwait's Zain.

According to the deal between Bharti and Zain, the Indian telecom player will have to pay $8.3

billion to Zain three months after the deal is signed and $700 million within a year. For this, ithas arranged a $7.5 billion dollar funding and a $1 billion rupee loan.

With regard to the dollar funding, Standard Chartered, the lead arranger, is lending $1.3 billion

while Barclays, the joint lead adviser, is funding $900 million. A group of eight international

banks are lending $600 million each. These are ANZ, BNP , Bank of America-Merrill Lynch, Credit

Agricole CIB, DBS, HSBC, Bank of Tokyo Mitsubishi and the Sumitomo Mitsui Banking

Corporation. The State Bank of India (SBI) has agreed to lend $500 million.

A $1 billion rupee loan from SBI and the company's own money will account for the rest of the

deal amount.

While $5.5 billion of the total loan amount will be routed through the Netherlands SPV, the

remaining will be routed through the Singapore SPV. The two SPVs will be responsible forrepaying the debt from the cash flows of the African business. But Bharti will have to step in if

there is a default.

Meanwhile, Zain has agreed to compensate Bharti for legal costs in case an ownership dispute

erupts over the crucial Nigerian operations, which contribute 36 per cent of Zain's revenues in

Africa. The indemnity from Zain will be valid for a few years. Zain, which holds around 65 per


3/6

cent of the Nigerian mobile market, is embroiled in a dispute with some shareholders, and the

indemnity is intended to protect Bharti in case of legal trouble.

Valuation of the companies and the deal :-

Bharti Airtel

Zain

Impact after the deal:-

Long term benefits

Even with all the financial drawbacks, Zain Africa is a strategic investment for Bharti Airtel from

a long-term perspective. Post acquisition, Bharti Airtel will become fifth largest service provider

in terms of the number of subscribers:

Africa is where the next round of telecom growth is due. With the aim to enter into the

continent and to widen their risk portfolio from India, it made sense for Bharti Airtel to invest

into Africa. Zain's African business was considered a natural target for Bharti Airtel, which has

thrived in an Indian market with low incomes and tariffs and a heavily rural population

characteristics shared by African nations. The multi-geography strategy will be a blessing in the

long run. For Bharti Airtel, this is the start of being a truly global player.


4/6

The African market has high growth potential for Bharti Airtel as the region is currently under-

penetrated. The average revenue per user of Zain Africa is quite high and that justifies its

current valuation by Bharti Airtel. If Bharti Airtel can attain operational synergies with Zain

Africa, it can go for more such acquisitions in the coming days as the Indian market is gradually

getting saturated.

Some of the issues and challenges for Bharti are:

The deal involves a heavy debt component with Bharti raising a huge loan from the

market. It will also inherit an existing debt of $1.7 billion on Zain's assets. This will lead

to a strain on Bharti's balance sheet in the short term.

The political and regulatory uncertainty in the countries where Zain operates has been

an additional cause for the stakeholders' anxieties. The fact that some of Zain's African

assets are in geo-politically sensitive countries could turn out to be a major challenge for

Bharti. The next 15-18 months will also reveal the quality of Zain's assets once they

enter the Bharti fold.

Brand building will be a key challenge.

Human Resources integration is a challenge in all crossover deals, but many believe that

successful global organisations like Bharti have the sensitivity, maturity and capability to

handle the issue well.


5/6


6/6

After two missed calls with MTN, this time Bharti Airtel may have successfully connected

with Zain which has resulted in it becoming the seventh largest mobile groups in the

world by subscriber connections and the second-largest African operator group behind

MTN. Considering the out of the ordinary efforts that Bharti Airtel has put in order to

fulfill its goal of entering the untapped African telecom market, the position seems to bewell deserved.

Bharti Airtel has a tough task ahead to convert the business of Zain, neck deep in losses,

to a profitable venture. Alien culture, terrain and political set up will make matters

worse for Bharti Airtel. However, the exceptional performance of Bharti Airtel over the

years is a standing testimony to its business acumen, expertise and strategic advantages

with which Bharti Airtel may author an African episode to its success story.

5th airtel’s acquisition of zain

Documents