Bharti Airtel on Tuesday said that funding the proposed merger with South African telecom major MTN was not a major issue. The last time the company had initiated talks with MTN in 2008, it had received offers from various banks for funding up to $60 billion.
According to analysts, this time Bharti would need a total of $6 billion to fund the new deal being discussed by the two companies. Of this, the Indian company may have to raise debt of $3-4 billion if the merger talks with MTN Group succeed.
Net cash outflow
“Bharti Airtel, in order to acquire a 49 per cent stake in MTN Group, would have to fork out a gross of $6.8 billion at ZAR 86 per MTN share. On the other hand, the company would see an inflow of $2.9 billion from MTN Group as part payment towards purchase of a 36 per cent post-transaction economic interest in Bharti. Thus, the net cash outflow required would be to the tune of approximately $3.9 billion.
“We believe the company would have to take on debt to fund this acquisition, if it goes through. The company does have over $1 billion on its books in the form of cash and short-term investments. However, given that a significant sum of money would be needed to finance the upcoming 3G auction, the company is more likely to take on debt on its books,” said analysts at Angel Broking.
Standard Chartered, which is advising Bharti, has agreed to underwrite about $1 billion and will help in raising the balance through a mix of short- and long-term paper. The good thing for Bharti is that it had only $629 million as net debt at the end of March, representing a net debt to EBITDA of 0.25, making it easier for the firm to take on more debt. “We do not anticipate the funding requirements to be onerous,” said a Bharti spokesperson.
On the Bombay Stock Exchange, Bharti Airtel today registered the second consecutive fall of over five per cent and settled the day at Rs 770.40. Analysts said that the fall in share price could be due to fears related to diluted EPS post the merger.
Since the proposed deal includes issuing fresh shares, the stake held by existing shareholders in Bharti Airtel will come down.
Talks with Singtel
“SingTel’s stake post the potential transaction would be contingent upon the ultimate mix of cash and shares,” said a Bharti spokesperson.
Meanwhile, the Union Government on Tuesday backed the merger talks between Bharti and MTN. The Finance Minister, Mr Pranab Mukherjee, and the Cabinet Minister, Mr Kamal Nath, said that the deal was a welcome move.
Source: The Hindu Businessline