Financing for the Bharti-MTN deal is progressing well

The Bharti-MTN deal requires $5 billion of loans, and the syndication, which is led by Standard Chartered and Barclays Capital, is attracting keen interest from banks.

Leading Indian telecommunications services provider Bharti Airtel will raise around $5 billion of financing for its deal with MTN, according to sources close to the situation. Informal commitments for the loans required are already in place and a number of banks have expressed interest in participating in both the dollar- and rupee-denominated facilities.

The deal between Bharti and Johannesburg-based cellular network operator MTN envisages the South African firm and its shareholders taking a 36% stake in Bharti, while the Indian company will acquire a 49% stake in MTN. The $5 billion is intended to be split into two tranches -- a $3 billion to $3.5 billion five-year dollar financing and a $1.5 billion to $2 billion rupee financing.

Barclays Capital and Standard Chartered are joint M&A advisers and arrangers for the financing. Standard Chartered has been working with Bharti on this deal since it was on the drawing board and sources say the UK bank did in fact make the introduction between Bharti and MTN. Bharti told its shareholders it was exploring the possibility of a merger with MTN in early May 2008, but aborted the deal later the same month when it could not reach an agreement with MTN on how to structure the deal. MTN continued to be in play, however, as Reliance Communications, a rival Indian firm controlled by Anil Ambani, was also exploring a deal with the South African firm. But, in July last year, the Reliance deal too was abandoned.

A potential deal between Bharti and MTN was once again mooted in May this year. MTN is being advised on the deal by Deutsche Securities and Bank of America Merrill Lynch, while Barclays Capital joined Standard Chartered as an adviser to Bharti about two months ago.

Bharti's founder and chairman, Sunil Mittal, decided to bring BarCap on board because of the strength of its South African franchise and to ensure that local issues would be well-managed, said sources. Barclays Bank owns a 55.4% stake in Absa Bank, a Johannesburg-headquartered bank which was formed in 1991. Absa had assets of R754.3 billion ($97 billion) as of June 30 this year.

The faith Standard Chartered has in Bharti is evident from the fact that the London-headquartered bank has committed to underwrite the entire facility for its client, said sources. Standard Chartered provided this backstop early this year when Bharti first resurrected the deal -- at a time when financing markets were still quite illiquid.

Since then, liquidity has come back into the market. The improved market environment, coupled with the Standard Chartered backstop, has enabled Bharti to invite other banks to join the financing consortium. ANZ, BNP Paribas, Calyon, Citi, DBS and some Japanese banks, including Bank of Tokyo-Mitsubishi, are said to be interested in participating in the dollar loan facility, alongside mandated lead arrangers (MLAs) BarCap and Standard Chartered. However, a formal syndicate is not yet in place.

Initially, the MLAs sought financing commitments for $500 million with no take-out flexibility, said a source. But as financing markets have grown more liquid, the latest indications are that the MLAs have been willing to be more flexible.

On the rupee front, India's largest bank, the State Bank of India, "is willing to pick up the entire amount", one source said. SBI has survived the subprime crisis with its balance sheet largely untouched and is eager to continue to build its asset book. Current indications are that SBI and Kotak Bank, a private sector bank founded by merchant banker Uday Kotak, will share the rupee tranche, although the exact split has not yet been decided.

All the banks that are interested may not have certainty of funds on the closure date, said a source, so some of the banks may provide take-out financing post-closure.

The loan is likely to be priced at around Libor plus 325bp, said sources. But this quote is indicative only, as Bharti could get the loan on even better terms if the closure is extended and liquidity continues to improve. An additional feature of the pricing is that all fees are not being rolled in upfront, rather they will be amortised and payable over the life of the financing. This structure is intended to ensure Bharti gets the full benefit of subsequent refinancings it may be able to arrange, for example a rupee bond issue.

According to sources, the latest extension of the final closure of the deal to September 30 (following two earlier extensions) has nothing to do with Bharti and MTN being unable to agree terms, as has been speculated. The deal is progressing well and South Africa's Communications Department was reported to have given an in-principle go ahead last week. The delays are due to the complexities involved in managing such a large inward remittance of rand, said sources. The rand has traditionally been a volatile and not very liquid currency, so risk mitigation measures need to be in place before the deal is announced.

At this stage, none of the outstanding issues seems like a show-stopper, the sources said.

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