Bharti needs $9bn for Zain

New Delhi, Feb. 16: Bharti Airtel is likely to pay $9 billion for Zain’s African assets, and it is reportedly looking for a dollar-denominated bridge loan to fund the deal.

Zain in a separate statement said it expected to make a profit of $5 billion from the deal. “The total agreed enterprise valuation of $10.7 billion is likely to result in a payout of around $9 billion (which includes any loans payable by the operating companies to Zain Group) based on the estimated net debt of $1.7 billion as on December 31, 2009,” Bharti said.

“The two sides have agreed that $700 million of the total amount would be paid after a year from the closing of the deal,” it said.

Bharti is in exclusive talks with Zain till March 25. “In case the deal fails to go through, a break-up fee of $150 million is payable by either side,” the statement said.

Zain said it expected to make returns of up to $5 billion. “After the repayment of certain liabilities, Zain expects net proceeds of up to $5 billion taking into consideration that Zain Group anticipates the expected proceeds to be reflected on the company's profit and loss during the second quarter of this year,” the company said.

“Zain would give pain to Bharti. In an effort to expand globally, Bharti is paying higher for Zain-Africa than the sector average,” brokerage Ambit Capital said in a note. It said Bharti required to “raise debt to fund the acquisition, which would increase the interest outgo and thereby impact profitability. The cash outflow on account of the 3G spectrum auction would further increase the debt burden.”

The Bharti stock plunged for the second day today. It plummeted 4.54 per cent on the BSE as investors were concerned that the company would have to borrow heavily to fund the deal. The Bharti counter lost 4.54 per cent to end at Rs 272.45, after plunging 5.52 per cent to a low of Rs 269.65.