Bharti and Zain agree $10.7 billion deal

Indian telecom company Bharti Airtel signs definitive agreements to buy the African operations of Zain, in a deal backed by $7.5 billion in debt financing provided by a host of banks led by Standard Chartered and Barclays.

Indian telecommunications company Bharti Airtel and the Bahrain-based Zain group have signed definitive agreements for Bharti to buy most of Zain's operations in Africa at an enterprise value of $10.7 billion.

The deal, which was first announced in February, has moved very quickly from the drawing board to completion of due diligence and signing of definitive deal documentation, which happened in Amsterdam on Tuesday. The agreed price of $10.7 billion comprises an equity value of $9 billion with the balance being debt on the books of Zain Africa. The $9 billion will be paid in two tranches: $8.3 billion on closing and $700 million one year from closing.

Bharti is buying Zain's businesses across 15 countries in Africa, which currently serve 42 million customers. Zain is the market leader in 10 of these countries and ranks second in four. The Ebitda attributable to the businesses that Bharti is buying was $958 million for the past financial year. With the deal Bharti expands its footprint to Burkina Faso, Chad, Congo Brazzaville, Democratic Republic of Congo, Gabon, Ghana, Kenya, Malawi, Madagascar, Niger, Nigeria, Sierra Leone, Tanzania, Uganda and Zambia. Bharti is not buying Zain's 31% stake in Wana Telecom in Morocco or its operations in Sudan.

After the deal, Bharti's customer base will increase to 179 million across 18 countries. Bharti launched mobile services in India in 1995 and in Sri Lanka in 2009 and acquired Warid Telecom in Bangladesh in January 2010. Singapore Telecommunications owns around one-third of Bharti's equity.

Zain will continue to serve 28 million customers across the Middle East and in the African countries it is not selling to Bharti. It said it will use the money it receives to repay a $4 billion revolving credit facility and said, subject to shareholder approval, it will distribute a large part of the balance to shareholders in the form of dividends.

"This agreement is a landmark for the global telecom industry and a game changer for Bharti Airtel," Sunil Mittal, chairman and managing director or Bharti Airtel, said in a National Stock Exchange filing. "The extremely tight time lines and the enormity of the task posed a real challenge. Bharti was able to achieve this important milestone through much hard work and support from SingTel and the external advisers."  

Bharti announced earlier in March that it had tied up the entire financing requirement of $8.3 billion required on closing. The company has raised $7.5 billion of debt financing from a long list of mandated lead arrangers: Standard Chartered Bank, Barclays Bank, State Bank of India (SBI), ANZ, BNP, Bank of America Merrill Lynch, Credit Agricole, DBS, HSBC, Bank of Tokyo Mitsubishi UFJ and Sumitomo Mitsui Banking Corporation. SBI has also committed the rupee equivalent of $1 billion to Bharti to cover any transaction costs.

On the advisory side too, a number of firms stand to book hefty fees on the M&A deal: Standard Chartered Bank as lead adviser; Barclays Capital as joint lead adviser; SBI as lead onshore adviser; and Kuwait-based firm Global Investment House KSCC as regional financial adviser to Bharti on the deal.

On the sell-side, UBS was lead financial adviser to Zain with BNP Paribas as co-adviser. 

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