Bharti Airtel CMD Sunil Mittal on Thursday said he sees more potential in Africa than other emerging markets and that the $9-billion price for the continent?s assets of Kuwaiti telecom firm Zain was not high given the growth opportunities there. In the course of a conference call with jittery market analysts on Thursday, he did, however, concede that it could dilute earnings in the short to medium term.
Mittal?s assertion is significant. In the first two days of the announcement of talks for the acquisition, Bharti shares fell by around 13% as the market viewed the price as expensive because Zain?s Africa operations are loss making.
Exuding confidence that Bharti would be able to apply its low-cost, high-volume model in Africa, Mittal said, ?The total population of the 15 African countries that Zain operates in is just under 500 million, and about 35 people in every 100 use mobile phones. We can substantially increase usage as well as achieve deeper penetration, resulting in rapid increase in overall traffic and improvement in margins.?
An earlier FE analysis had highlighted precisely the same point. Mittal said Bharti was still conducting due diligence, but was hopeful of clinching a deal by March 25, when the period of exclusive talks end.
Speaking on the issue, Bharti group deputy CEO Akhil Gupta said, ?We have very carefully evaluated the financial aspect of the deal as well as the valuation.?
?The valuation is fair and reasonable and the financial impact would be well within accepted and prudential norms, even if fully funded by debt,? he added.
Though Bharti is yet to detail its financing plans, bankers have said the company is looking to raise debt from offshore as well the local markets to bankroll the deal.
Gupta said that raising equity by Bharti Airtel or tower unit Infratel and Indus was a possibility to cut debt after the deal. ?We are a bit debt-averse and we would definitely want this debt level to come down,? he said.
?It does remain a possibility, to raise more equity at Airtel or at the passive infrastructure (unit), but we have not taken any decision at this point of time.
Though there could be some pressure on the company?s earnings per share in the short to medium term to fund the huge deal, it was not a cause for worry. When you look for growth stories like this, I think earnings per share dilution should for some time take a backseat,? he added.
On Thursday, Bharti?s shares closed up 0.16 % on the BSE at Rs 276.35 in a flat market. Manoj Kohli, the designated head of Bharti?s new international unit said, the company would aim to replicate its outsourcing, infrastructure sharing and distribution strategies in Africa and should be able to integrate Zain?s operations within six months of closing the deal.