Bharti to use US$8.3b term loan to finance Zain unit buy

Tuesday March 23, 2010


NEW DELHI: Bharti Airtel’s US$8.3bil loan commitment for its planned buy of Zain’s African assets is a term facility with average maturity just below five years, the leading Indian telecoms operator said yesterday.
Bharti declined to comment on the cost of the loan, but said in a statement to Reuters it believed the financing was priced “competitively”.
Bharti said US$7.5bil of the loan was dollar-denominated, and State Bank of India (SBI), the country’s largest lender, had committed for up to US$1bil equivalent in rupee loans.
Meanwhile, Bloomberg reported that Bharti Airtel has moved a step closer to its proposed US$9bil acquisition of Zain’s African assets after it arranged funding for 90% of the bid, a level of debt that may drag on earnings for the next year.
“At least three quarters if not four quarters of earnings per share dilution pressure will be there,” said Jagannadham Thunuguntla, chief strategist at SMC Capitals Ltd in New Delhi. “Even for Bharti’s balance sheet, US$8.5bil is a substantial loan.” SMC rates Bharti “hold.”
Bharti would get US$7.5bil in overseas loans from a group of banks led by Standard Chartered Plc and Barclays Plc, India’s biggest wireless company said yesterday, a day after its board gave approval for a formal offer this week. The carrier would also get a rupee loan equivalent to as much as US$1bil from the State Bank of India, which would partly cover transaction costs, the New-Delhi-based company said.
Bharti’s board on March 20 approved the planned purchase of the African wireless assets of Zain, Kuwait’s biggest phone company, according to two people with knowledge of the negotiations. The carriers have until March 25 to reach an agreement that would give India’s largest mobile-phone operator 42 million new subscribers in 15 African countries.
Bharti rose 1.6% to 316.95 rupees as of 9:03 am in Mumbai trading, the best performer yesterday on the benchmark Sensitive Index which dropped 0.9%. The stock was the second-worst performer of 87 companies on the Bloomberg World Telecommunications Index in the six months ended March 19.
The phone operator was seeking a six-year US$8.5bil loan with an average life of 4.75 years, two people with direct knowledge of the matter said last week. Bharti may pay interest of 2 percentage points more than the London interbank offered rate, the people, who declined to be identified, said.
The other banks participating in the financing led by Standard Chartered and Barclays include State Bank of India, Australia & New Zealand Banking Group Ltd, Bank of America Merrill Lynch, BNP Paribas SA, Credit Agricole CIB, DBS Group Holdings Ltd, HSBC Holdings Plc, Bank of Tokyo-Mitsubishi UFJ Ltd and Sumitomo Mitsui Banking Corp, Bharti said. Global Investment House KSCC is acting as regional financial adviser on the deal, Bharti said. — Agencies
The banks’ financing paves the way for early completion of the deal once Zain agrees to the offer, Thunuguntla said.
The Indian phone company, which is also assuming debt of 1.7 billion at Zain’s African operations, could see earnings per share drop as much as 23% in the year ending March 2011 if it goes through with the transaction, Morgan Stanley analyst Vinay Jaising wrote in a note to clients on Feb 16.
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