Zain's a better bet than MTN: Sunil Bharti Mittal
Zain is smaller in size, but is not, in any sense, second to MTN, says Bharti chairman Sunil Mittal in a chat with ET NOW. World's top 10 telcos | Power of Bharti+Zain
Sunil Bharti Mittal has been chasing that big-ticket global acquisition for more than two years. Success eluded him, as MTN slipped twice from his grasp. But, on Tuesday, he finally signed a spectacular deal that will take Bharti and the Airtel brand to 15 new countries. Minutes after he signed the $10.7-billion deal, he spoke first to ET NOW exclusively from Amsterdam. Excerpts: (Watch)
From selling phones to signing what is India’s second-largest cross-border deal, it’s been a long journey. How do you feel?
We all feel very humble. By God’s grace, we have got an opportunity to demonstrate that an Indian company can go out and create a very large base for itself outside India. In one stroke this takes us to 18-19 countries. It makes us India’s first truly post-independence multinational. We all feel proud that it gives us a chance to show to the world the telecom model we built in India.
We understand that due diligence has indicated there could be liabilities arising out of several lawsuits against Zain in various countries. Are you protected against potential fallout from these lawsuits?
Absolutely. Whenever a deal of this kind is signed, all documentation is done to cover the buyer from any unforeseen eventualities that may arise. I can tell you without going into too much detail those matters have been covered.
When will Zain be rebranded as Airtel in Africa?
It’s hard for me to give a date on that, but I’d say within months of closing the deal.
What is the timeline for payment? Is the payment for the first tranche contingent on the dealclosure and only after you obtain regulatory approvals?
It’s a very customised process. Today, we have entered into a definitive legally binding agreement that involves certain terms and conditions. Wherever regulatory approvals are required, we’ll take them. Approvals are necessary and take their own time, but we don’t expect it to take too long. As soon as the regulatory approvals fall in place, $8.3 billion will get transferred. The remaining $700 million will be transferred after one year.
Bharti has traditionally been a debt-averse company. Do you have a road map of some kind of equity dilution?
We’ll see what kind of fund-raising activities are required. As a company, we have never carried much debt on our books. Yes, this particular asset in itself generates $1.2-billion EBITDA and we are in a comfortable position as of now with regard to servicing the debt. While there will be a requirement of bringing down the debt, going forward, how we’ll do it is not yet decided.
Are you confident that you will be in a position to replicate the outsourcing model in Africa?
Absolutely. We have had a number of conversations with our partners. And I have no doubt that all of them will come along with us to Africa because it’s not just a great opportunity for Bharti, but for all its partners in the ecosystem.
Comparisons with MTN are inevitable. Some analysts say MTN would have been a superior deal for you. How do you counter that?
MTN was a bigger deal than this, but we were getting just participation rights and co-management rights in the company. It was not as clean and as elegant a deal as Zain. Zain is smaller in size, but is not, in any sense, second to MTN. In its own right, it is a leader in 10 markets, including those where MTN is present. If you ask my honest assessment, this is a much better deal because we will have our brand, our management stamp, our low-cost model and our outsourcing model. So, this is a much better deal for Bharti. There is no question about that in my mind.
From selling phones to signing what is India’s second-largest cross-border deal, it’s been a long journey. How do you feel?
We all feel very humble. By God’s grace, we have got an opportunity to demonstrate that an Indian company can go out and create a very large base for itself outside India. In one stroke this takes us to 18-19 countries. It makes us India’s first truly post-independence multinational. We all feel proud that it gives us a chance to show to the world the telecom model we built in India.
We understand that due diligence has indicated there could be liabilities arising out of several lawsuits against Zain in various countries. Are you protected against potential fallout from these lawsuits?
Absolutely. Whenever a deal of this kind is signed, all documentation is done to cover the buyer from any unforeseen eventualities that may arise. I can tell you without going into too much detail those matters have been covered.
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When will Zain be rebranded as Airtel in Africa?
It’s hard for me to give a date on that, but I’d say within months of closing the deal.
What is the timeline for payment? Is the payment for the first tranche contingent on the dealclosure and only after you obtain regulatory approvals?
It’s a very customised process. Today, we have entered into a definitive legally binding agreement that involves certain terms and conditions. Wherever regulatory approvals are required, we’ll take them. Approvals are necessary and take their own time, but we don’t expect it to take too long. As soon as the regulatory approvals fall in place, $8.3 billion will get transferred. The remaining $700 million will be transferred after one year.
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Bharti has traditionally been a debt-averse company. Do you have a road map of some kind of equity dilution?
We’ll see what kind of fund-raising activities are required. As a company, we have never carried much debt on our books. Yes, this particular asset in itself generates $1.2-billion EBITDA and we are in a comfortable position as of now with regard to servicing the debt. While there will be a requirement of bringing down the debt, going forward, how we’ll do it is not yet decided.
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Are you confident that you will be in a position to replicate the outsourcing model in Africa?
Absolutely. We have had a number of conversations with our partners. And I have no doubt that all of them will come along with us to Africa because it’s not just a great opportunity for Bharti, but for all its partners in the ecosystem.
Comparisons with MTN are inevitable. Some analysts say MTN would have been a superior deal for you. How do you counter that?
MTN was a bigger deal than this, but we were getting just participation rights and co-management rights in the company. It was not as clean and as elegant a deal as Zain. Zain is smaller in size, but is not, in any sense, second to MTN. In its own right, it is a leader in 10 markets, including those where MTN is present. If you ask my honest assessment, this is a much better deal because we will have our brand, our management stamp, our low-cost model and our outsourcing model. So, this is a much better deal for Bharti. There is no question about that in my mind.
What is your strategy for the turnaround for Zain?
I don’t agree that we need a turnaround. Zain is a very well-run company. It’s No 1 in 10 countries, No 2 in four countries and No 4 in just one country, Ghana. It has $4 billion of topline and $1.2 billion EBIDTA. The company has been doing really well. Now, the question is, will we be able to take it to greater heights. The answer is ‘Yes’. That’s the confidence with which we’re entering into this company.
Could you tell us a bit about the structure of the deal?
I will not be able to give you the whole structure, but it will suffice to say that a subsidiary of Bharti Airtel has been created in the Netherlands. That will be the vehicle which will own Zain Africa BV.
When will the deal be EPS accretive for Bharti? This is a number a lot of analysts will be keenly watching.
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I will leave it to my treasury team to look at those numbers. I personally don’t look at EPS accretion. I look at when we are going to enhance our market share and when we are going to get to particular levels of sales and EBITDA. So, I’ll leave it to my investor relation team to work out those numbers and give to analysts.What will be the structure of the Zain Africa board? Will Manoj Kohli be moving to Africa? Who are the key executives that you are likely to retain from the current management team?
The exact structure will take some time. I can confirm that Manoj Kohli is the designated CEO of Africa. Manoj heads the international operations outside South Asia and will be leading the charge of the new operations. This company will be 100% owned by Bharti and will be populated by Bharti members on the board. The accounts will be consolidated with that of Bharti. As far as management changes are considered, some key people will also be moving from India to Africa. Operations will be led by the Africans and supported by key members of the Indian team.
In the past six months there has not been any fresh investment in Zain. How much of investment will be made into the company to grow the business and take it to the next level?
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Zain has been certainly making investment year-on-year. Every year, they have been investing $600-700 million in capex, sometimes even $800 million. We are yet to evaluate the fresh investment numbers. But we’ll surely grow the market and customer base.Have you had a chance to speak with Phuthuma Nhleko (CEO of MTN)? Last time we spoke after the deal with MTN failed, you described him as a friend. Now, you are going to turn competitors.
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I speak to him all the time. I had a nice chat with him just last week. I’m sure we will cooperate and collaborate in a lot of areas. There is network sharing, tower sharing. lots of stuff needs to be done with our peers in Africa. Are you going to wait for deal closure to turn non-vegetarian again or are you having meat for dinner tonight?
No no, I’m vegetarian until it closes.
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