Zain Africa sale raises stakes for India’s Bharti

For several months, the principal shareholders of the Zain Group of Kuwait, one of the region’s largest telecom service providers, have been looking for a buyer for the company’s assets in Africa.

Meanwhile, in India, Sunil Bharti Mittal, the chairman of the country’s largest telecom company, Bharti Airtel, has been seeking an African venture for the past two years.

He negotiated twice with MTN of South Africa, but talks broke down.

The two sides had reason to come together — and so they did.

In a deal announced on February 14, the $8.15 billion Bharti and the $4.14 billion Zain told their respective stock exchanges that they were in “exclusive discussions” until March 25.

On the table were the African assets of Zain — Zain Africa BV — which comprises 15 countries.

The combined firm would have revenues of $13 billion, and earnings before interest, taxes, depreciation and amortization (EBITDA) of around $5 billion, after the deal closes in May, as Bharti expects.

Left with Zain would be Kuwait, Jordan, Bahrain, Lebanon, Iraq, Saudi Arabia and Palestine, and two African markets — Sudan and Morocco — which are considered part of the Middle East cluster.

“This potential transaction remains subject to due diligence, customary regulatory approvals and signing of final transaction documentation. There can be no assurance that a transaction will be consummated. ” Bharti informed the Bombay Stock Exchange (BSE).

The note is, of course, a measure of caution.

Talk to the people at Bharti and they will tell you off the record that they expect this deal to be smooth sailing.

“The MTN deal was complicated and needed many interventions from both governments,” Mittal told weekly business magazine BusinessWorld. “In Zain, there are no multiple clearances required. Only the Zain board has to give a go ahead, and we have to pay.”

Yet the proposed deal has given rise to misgivings.

Bharti shares plunged some 14 per cent on the Mumbai stock exchange in just two days.

Almost every research house has been critical of the deal.