Bharti regains losses as investors revisit Zain deal (India)

www.WirelessFederation.com/news: Within two days of the announcement that Bharti Airtel and Zain will enter into exclusive talks for Zain’s African assets, Bharti lost $3.6 billion in market capitalisation.

However, an improvement in the investor’s sentiments has been noticed since then, primarily after Bharti’s conference call with analysts in end-February on the Zain acquisition. The main concern was the fact that the valuation of the deal at 11.6 times estimated 2009 EBITDA was far too high.

In its clarification, the company said that the $1.7 billion debt component in Zain Africa’s enterprise value is inclusive of the share attributable to minority shareholders. The company has also indicated that tax rates in Africa are relatively lower, which justifies some premium in the valuation. Besides, the capital infusion of $9 billion of Zain till date makes the valuation of $10.7 billion look reasonable. The fact that Zain’s margin is lower than Bharti’s margin also leaves room for cost containment.

$4 billion would be used by Zain Africa’s holding company to retire debt on its books with the interest burden of $4 billion debt already reflected in Zain Africa’s financials, hence, the incremental interest burden would only be on $5 billion of debt.

All the factors have contributed well to improve the sentiments of the investors and has helped Bharti regained almost two-thirds of those losses.