Bharti Airtel Ltd.’s plan to buy most of the African assets of Kuwait’s Zain for $10.7 billion may face challenges even before it begins its due diligence.
India’s largest wireless company’s plan can’t include Zain’s Celtel Nigeria B.V. unit until an ownership dispute with Econet Wireless Holdings Ltd. on that business is resolved, Econet Chief Executive Officer Strive Masiyiwa said.
“Zain Nigeria is not for sale,” Masiyiwa said in an interview in Johannesburg today.
For Bharti, troubles in Nigeria, Africa’s most-populous nation and the continent’s fastest-growing telecommunications market, may be an indication of what it might be up against in the 15 countries where it’s seeking to take over Zain’s operations. Kuwait’s Mobile Telecommunications Co., or Zain, and Bharti said in statements today that they will hold exclusive talks until March 25 on the assets.
“If there are 15 companies in which you are taking a stake, then there are going to be 15 different complexities,” said Jigar Shah, senior vice president of Kim Eng Securities Pvt. in Mumbai. “It’s doubtful that a company like Bharti hasn’t foreseen this.”
Bharti fell as much as 9.6 percent in Mumbai trading, the most since Oct. 6. Zain shares were suspended from trading in Kuwait. They last traded on Feb. 11 when they advanced 3.9 percent to 1,080 Kuwaiti dinars. The stock has soared 23 percent in the last week, giving the company a market value of 4.64 billion Kuwaiti dinars ($16 billion).
Econet’s Claim
Econet, based in a suburb of Johannesburg, is seeking to overturn a 2006 deal in which Celtel bought a 65 percent stake in Nigerian mobile operator Vmobile, since renamed Zain Nigeria. Econet, with 5 percent of Zain Nigeria, says it should have had the right of first refusal on those shares.
Econet’s Masiyiwa said today that the case is still in arbitration and that until that process has been completed, “Nigeria cannot be sold, it is not for sale, there can be no due diligence by Bharti or any other party.”
Zain bought Celtel International for $3.4 billion in 2005 to expand into 13 African countries, including Kenya and Nigeria.
Senjam Raj Sekhar, vice-president of corporate communications at Bharti, did not reply to an e-mail or a text message seeking a comment on the Nigerian situation. Zain spokesman Ibrahim Adel couldn’t immediately be reached for comment on the matter.
Mittal’s Push
“Even without Nigeria the deal is doable for Bharti although Nigeria is a big piece of the cake,” said Thecla Mbongue, an analyst with consultant Informa Telecoms & Media in Johannesburg. “Indian investors are eager to get a foot in the door.”
Bharti’s third attempt to enter Africa highlights billionaire Chairman Sunil Mittal’s ambitions to expand overseas as competition intensifies at home, where call rates have fallen to less than a penny a minute.
Mittal has tried to gain access to other fast-growing markets, including a second failed attempt last year to buy South Africa’s MTN Group Ltd. for about $23 billion.
Bharti is seeking Zain’s African business for access to an estimated 42 million customers across 15 African countries from Nigeria to Uganda.
Key Unit
The Nigerian unit is a key asset for Zain. In 2008, Zain generated about 21 percent of its total earnings before interest, tax, depreciation and amortization in Nigeria and about 22 percent of its total sales.
In Nigeria, Africa’s second-largest economy with a population of 155 million, the number of fixed-line and mobile- phone customers increased to 67.9 million in June from 65.5 million in January, according to the Abuja-based Nigerian Communications Commission.
Mobile-phone subscribers accounted for 98 percent of the total. Phone connections in Nigeria soared from 867,000 in 2001 when mobile-phone licenses were auctioned for $285 million each. Nigeria has overtaken South Africa as the African country with the most phone users, with many people carrying multiple handsets because of unreliable services.
Zain has invested $435 million in Nigeria in the last 12 months, while revenue per subscriber fell 30% during the same period to $7, Macquarie Capital Securities Ltd. wrote in a note. Zain’s Nigeria unit lost $58 million, contributing to a net loss of Zain’s Africa assets of $35 million, it said.
“Without Nigeria, the transaction would probably be a lot less attractive,” said Lindsey Mc Donald, an analyst with consultant Frost & Sullivan in Dubai. “It would leave a bad taste in the mouth, but there is still a lot of investment needed in Nigeria and the average revenue per user has been falling. If it’s excluded, it may be a blessing in disguise.”
Source: Business Week