Ownership tussle may put a spoke in Bharti-Zain deal

NEW DELHI: A dispute over the ownership of Zain’s crucial Nigerian unit as well as a legal offensive by a minority shareholder could complicate Bharti Airtel’s potential acquisition of the African operations of the Kuwait-based cellphone company.

South Africa-based Econet Wireless, a founding shareholder of what is now known as Zain Nigeria, is attempting to overturn the sale in 2006 of a 65% stake in the company to the Kuwait-based mobile operator, claiming it was not given the first right of refusal.

Econet CEO Strive Masiyiwa told ET that Zain had given an undertaking to a tribunal set up by the Federal High Court of Nigeria last year that it will not sell its Nigerian unit until the issue of its ownership is resolved.
The dispute is being heard by the United Nations Commission on International Trade Law arbitration.

Bharti is in talks to buy Zain’s African operations for about $10.7 billion and Zain Nigeria accounts for around two-fifths of the revenue and customer-base of the business. Representatives of Bharti and Zain were not available for comment.

A banker close to the Bharti-Zain transaction told ET that while the Nigeria problem has to be solved, it is unlikely to be a “show-stopper” now. Nasser Kharafi of the Al Kharafi Group, one of the largest shareholders in Zain, told ET that he doesn’t think the dispute with Econet will be an impediment to the deal.

A minority shareholder in Zain Nigeria said it had won a temporary court injunction restraining Zain from managing the unit. Broad Communications, which owns a 14% stake in Zain Nigeria, is accusing Zain of “destroying shareholder value” and “mismanaging” the company.

Zain Nigeria was founded as Econet Wireless Nigeria in 2001, with Mr Masiyiwa’s Econet Wireless International owning 5% stake and a contract to run the company. But Econet’s Nigerian partners scaled back the management deal, called in Vodacom and renamed the company Vee Networks.

Vodacom then pulled out and in 2006, the Nigerian partners reached a deal to sell 65% stake to Celtel, a unit of Zain. Econet said that such a deal is not valid because it was not given the first right of refusal on the shares.

Zain Africa has 41.9 million subscribers, of which 14.9 million are from Nigeria. While the Nigerian subsidiary made an operating profit, it sustained a net loss of over $80 million in the nine months to September 2009. Zain Nigeria also accounts for more than a fifth of Zain’s customer base.

Nigeria is the largest market in Africa for Zain. Its closest rival is the South African telco MTN, which Bharti tried to buy twice unsuccessfully. MTN controls 45% of the mobile phone market in Nigeria and Zain one-fourth.