Telecom major Bharti Airtel’s $10.7 billion proposed buyout of Kuwait-based telecom company Zain’s African

RELATED ARTICLES Bharti to buy 49% in Qualcomm India broadband venture Telecom stocks tank; Bharti down over 4% Regulatory uncertainty to impact telecom's future

assets could produce gross earnings higher than the Indian com-pany and generate free cash flows of $11 billion in five years, according to Morgan Stanley.

In a report, the financial services firm says the consolidated company will address a population of 1.5 billion with over 164 million subscribers, with an Ebitda of 26 per cent, higher than Bharti’s standalone, growing at 11 per cent a year (for financial year 2010-2012).

The report says the consolidated entity’s cash flows would be $13 billion in five years. In a statement Bharti said the total agreed enterprise valuation of $10.7 billion was likely to result in a total payout of around $9 billion (which included loans payable by the operating companies to Zain group) based on the estimated net debt of approximately $1.7 billion as on December 31. “It has been agreed that a sum of $700 million would be paid after one year from closing,” the statement said.

Analysts say Bharti will be able to de-leverage itself in a couple of years.

Just after Bharti and Zain announced payment milestones, Econet Wireless, which holds a 5 per cent stake in Zain’s Celtel Nigeria BV unit, said it opposed the deal, citing first the right of refusal over the Nigeria operations.

A statement from Econet said it was pursuing arbitration proceedings against Zain and others to challenge a 2006 transaction. “Under the terms of the original shareholder agreement, Econet had a right of first refusal over the stake, a right, which was denied in 2006. Econet made an application for interim measures to prohibit Celtel (now Zain), from selling, transferring, disposing of, dealing with or otherwise encumbering the disputed stake until such time as the arbitral tribunal has published its final award.”

According to a Macquarie report the valuations look ‘very expensive’ even assuming no debt was being acquired by Bharti. “Bharti may be banking on significant improvements in capital expenditure efficiencies and better financing terms for this business, but quick comparisons with MTN suggest that this business is significantly inferior in terms of profitability, operating metrics and growth outlook.”