Airtel acquires Zain's Africa business for $10.7 billion

In the largest ever telecom takeover by an Indian firm, Bharti Airtel has signed a deal with Kuwait-based Zain Telecom to buy its African business for $10.7 billion (about Rs 48,000 crore).

The acquisition, the second largest by an Indian entity after Tatas' Corus deal, would make Sunil Mittal-led Bharti the world's seventh largest mobile operator with a total subscriber base of about 179 million. It would have estimated revenues of $13 billion. Zain has operations in 17 African countries and Bharti has acquired all, but those in Sudan and Morocco.

The African business would widen Bharti's reach, which was hitherto restricted to Asia and Indian Ocean region with businesses in Sri Lanka, Bangladesh and Seychelles.

Announcing the deal, Sunil Mittal, chairman and managing director of Bharti Enterprises said, "This agreement is a landmark for global telecom industry and game changer for Bharti.

"This transaction is a pioneering step towards South-South cooperation and strengthening of ties between India and Africa. With this acquisition, Bharti Airtel will be transformed into a truly global telecom company with operations across 18 countries fulfilling our vision of building a world-class multinational,” he said.

The African business would widen Bharti's reach, which was hitherto restricted to Asia and Indian Ocean region with businesses in Sri Lanka, Bangladesh and Seychelles.

Firing up Bharti's global ambitions, the latest acquisition comes in the backdrop of diminishing revenues from its India operations due to hyper competition and rock-bottom tariffs.

The transaction, which excludes Zain's operations in Sudan and Morocco, may, however, pose challenges to Mittal in terms of turning around Zain's under-performing networks, particularly in Nigeria, the Kuwaiti company's most important market.

Bharti Airtel has long been looking to expand into African market but was unable to do so. After twice wooing but failing to clinch a merger with South Africa's MTN, Bharti's ambitions to enter into vast African market has now been fulfilled.

The Zain deal would also catapult the Indian entity into the league of world's top 10 telecom players.

Sunil Mittal has nominated his top lieutenant Manoj Kohli to head Airtel's Africa operations.

"We have taken a debt of $8.3 billion and shall try to reduce it on our balance sheets....but there is no hurry...we are comfortable financially," Mittal said.

Of the $10.7 billion enterprise value of Zain, Bharti will be paying $8.3 billion upfront and $700 million after a year. It would also take over approximately $1.7 billion of Zain's debts as on December 31, 2009.

Of the $8.3 billion paid to Zain, Bharti has raised the 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 -- $1.3 billion followed by $0.9 billion by Barclays.

State Bank of India has agreed up to one billion dollar loan in rupee terms.