Bharti to buy Zain's SA assets for $10.7 bn, street cautious
Bharti shares plunge 10% on Zain deal
MUMBAI - Shares of Bharti Airtel plunged nearly 10 per cent Monday as brokerages gave a thumbs down to the company’s deal with Kuwaiti telecom
Bank of America-Merrill Lynch cut Bharti Airtel to ‘underperform’ from ‘buy’ after the mobile operator began its exclusive talks with Zain. The investment bank said the valuation seems rich, the growth outlook for Zain's African portfolio appears unexciting and a potential deal could materially stress Bharti's balance sheet.
Bharti announced Monday an offer to buy the African assets of Kuwait's Zain telecom for $10.7 billion. Bharti Airtel and Zain Africa "have agreed to enter into exclusive
discussions until 25 March, 2010 for the acquisition of Zain's African unit based on an enterprise value of $10.7 billion," Bharti said in a statement.
A consortium of Asian investors has for months been trying to buy Zain's stakes estimated to be worth $13.7 billion from Kuwaiti family conglomerate Kharafi Group, which is one of the main shareholders in Zain.
Meanwhile, Telecom Minister A Raja commented that the Bharti-Zain deal is good for the industry.
Ambareesh Baliga, vice president at Karvy Stock Broking feels that the deal seems too expensive for Bharti and although the stock may stand to benefit in the long term, the short term is negative. “This looks a bit expensive for Bharti considering these are not extremely profitable operations. Those are future growth areas. But the growth will come only in 5-8 years time and in the short-term there is a risk of straining Bharti's balance sheet," said Baliga.
Giving a fundamental take on the deal, Romal Shetty, head- telecom, KPMG said, “Bharti’s bid is a step in the right direction to make its footprint in Africa. This is where the next round of growth is going to happen. India is becoming more and more saturated in the coming years. Africa is under-pentrated and has lesser competition thus making the Zean deal an attractive buy for Bharti.”
At 3 pm, shares of Bharti Airtel tumbled 9.11 per cent to Rs 285.85 in reaction to the deal.
Full Coverage: Bharti-Zain deal | Stock quote: Bharti Airtel
**************************************
Check out the Top 10 Fund Houses for the quarter
Market Watch: Nifty hovers around 4800; Bharti, Sterlite down
Inflation hits 14-month high at 8.56% in January
*******************************************
Src: ET, Moneycontrol