Bharti ties up $8.5 b to finance Zain buy

WAR CHEST IN PLACE

BHARTI Airtel, India's largest telecom firm by revenue and number of customers, has finalised $8.5 billion of funding for its acquisition of the African assets of Kuwait's Zain as well as a likely foray into third-generation, or 3G, telecom services in India. 

    The company said in a statement that a consortium of banks led by Standard Chartered and Barclays would lend it $7.5 billion and the State Bank of India (SBI) another $1 billion, a so-called rupee loan. The latter — the rupee equivalent of $1 billion — would be used to cover what the company described as "associated transaction costs". 
    The statement referred only to the acquisition of Zain, but multiple banking sources said the company had also arranged for money to fund a foray into 3G services, frequency spectrum for which is being auctioned by the Indian government. 
    On Saturday, the Bharti Airtel board had approved the company's financing plans, people familiar with the development told ET. Armed with the approval, the Bharti management is expected to make a final offer to Zain this week. 
    The Indian telco is close to the finish line and the transaction would be announced soon, the persons close to the development added. Bharti Airtel and Zain are in exclusive talks until March 25 — during which Zain can't approach other possible buyers — and people familiar with the development said the exclusivity period may be extended by a few days. 
    The Bharti Airtel board is believed to have approved the acquisition for a so-called enterprise value of $10.7 billion which consists of $1.7 billion of Zain's debt, which Bharti will now have to pay, and a $9-billion cash payment. Bharti has $1.5 billion of cash on its balance sheet which will be used by the company for the acquisition and in the 3G auction. Zain buy evokes global interest 
AFTER Zain's board approves the deal, Bharti will have three months to pay, within which it will have to get regulatory approval. The dollar funding is being raised through a special purpose vehicle based in the Netherlands. The cost of dollar-funding is at around 195 bps above Libor, confirmed three officials. The average loan tenure is around 4.75 years. 
    SBI, India's largest bank, has provided the largest chunk of funding of $1.5 billion of which $500 million is a dollar loan, the company said in the statement. Standard Chartered, the lead arranger for the dollar loan, will lend $1.3 billion while Barclays, the joint lead advisor, will provide $900 million. A group of eight international banks will bring in the remaining $4.8 billion. 
    The rupee funding by SBI — around $1 billion — is likely to be used for the 3G auction, apart from covering transaction costs. Sources said the six-year loan from SBI is likely to be priced at around 9% and would have a moratorium of two years. In the initial bid, some 15 banks are said to have committed $1 billion each, according to bankers, probably the first time that any Indian corporate has received such large offers for funding. StanChart is said to have committed $5.5 billion and Barclays will stump up around $5 billion. "Bharti has rarely hit the international market. There is a lot of interest from the global banks to hold quality paper," said a senior official from a foreign bank who spoke on condition of anonymity. 
    Bharti is likely to sign the loan agreement with the banks in the next few days. The other banks in the consortium include Australia & New Zealand Banking Group, Bank of America-Merrill Lynch, BNP Paribas, Credit Agricole CIB, DBS Group Holdings, HSBC Holdings, Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking Corp, Bharti's statement said.