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Analysts worry over Zain/Bharti deal

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by Jafar, Apr 1, 2010.

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    Jafar JF-Expert Member

    Apr 1, 2010
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    Ayodamola Owoseye with agency report

    April 1, 2010 12:22AM

    Analysts have expressed concerns over the ability of Bharti Airtel to tackle the many challenges it inherited from its takeover of the Zain Africa assets, which include the Nigerian operations.
    Concerns raised include the need for Bharti Airtel to work on getting regulatory clearances for its $9 billion deal to buy 15 African operations of Kuwaiti telecom Zain, and the turning around the loss-making assets, which should be its priority.
    Already, the Nigerian Communications Commission, the industry regulator, denies knowledge of the deal, as spokesperson, Reuben Muoka said, “They (Zain) have not informed us.”

    Operational challenges in Nigeria
    Apart from regulatory approval, Zain Nigeria, which is officially still registered as Celtel Nigeria Limited, is in a running battle with its management over operational issues, including the shareholding structure, management style and dwindling profit margins.
    A month ago, NEXT on Sunday had exclusively reported that a boardroom squabbling is threatening to deal a further blow on its not-too-successful operations in the country, which caused the company to lose a considerable share of the mobile phone market in Nigeria.
    Broad Communications Limited, one of the minority shareholders, is accusing the majority shareholders, Zain Group, Kuwait, of mismanagement, fraud and capital flight to the tune of N16.6 billion based on a review of documents in the possession of NEXT.
    As a result of these and a host of other unresolved issues, Broad Communications and other shareholders in January instituted a suit at the Federal High Court, asking that the services of a world class accounting firm be engaged to conduct an independent enquiry into the affairs of the company.
    The shareholders also challenged the intended sale of the Zain Group’s 65 percent equity to Bharti Airtel, an Indian telecommunication company, on the ground that it is a clear contravention of its pre-emption rights because it was not formally informed of this move.
    It is uncertain as at press time how the aggrieved shareholders feel about the sealing of the Zain/Bharti deal, as attempts to get their comments were not successful.

    The ownership saga
    There has been an ongoing dispute over the ownership of Zain Nigeria. The minority ownership of Zain’s operations in Nigeria, the biggest market in the deal, is in dispute and this needs to be settled, for Bharti to be able to assume full ownership of the company.
    Until the settling, Bharti will not be able to boast of 100 percent ownership of the Nigeria share of the deal which, according to Asaad Al Banwan, Chairman, Zain Group, has grown substantially to become one of Africa’s leading mobile operators.
    Zain Nigeria, which made history on August 5, 2001 as the first telecoms operator to launch commercial GSM services in Nigeria, has been known by different names due to various sales and mergers.
    Formerly known as Celtel Nigeria, the company was established in 2000 as Econet Wireless, by a group of institutional and private investors as well as three state governments: Lagos, Delta, and Akwa Ibom States. Having gone through various hands and name change, it was finally acquired as Celtel in 2005 by Zain Kuwait.
    Sunil Bharti Mittal, Chairman and Managing Director, Bharti Airtel told India’s CNBC TV18, speaking about issues in Nigeria and Gabon, “Bharti would also talk to the minority shareholders in Zain Nigeria. We’re happy to work with our local Nigerian partners. In the coming weeks, we’ll sit with them and assure them of our strategy for Nigeria.”
    “Gabon is a very small market and in most cases regulators can always be dealt with. But Nigeria is a bigger stumbling block, because it is a key market and shareholders are always trickier to deal with,” said Gartner’s Bhatia.

    The deal
    Having deliberated for months, the Indian top mobile operator acquired Zain Africa operations in a $10.7-billion deal, making it the second largest cellular company on the African continent.
    The acquisition, ranked the second-largest foreign takeover in Indian corporate history, sees Bharti acquire Kuwait-based Zain’s African mobile services operations in 15 countries including Nigeria, Kenya, and Tanzania and placing the company as the world’s fifth largest wireless firm with subscribers’ presence in 18 countries.
    The deal gave Bharti 42 million subscribers in 15 African countries and combined estimated annual revenue of $3.6 billion. Unfortunately, much work is expected to be done in Africa towards repositioning the company to become a profit making venture as it is currently making losses.

    Challenges to face
    With this acquisition, analysts are predicting a tough financial and management challenges for the Indian mobile market leader as the company is already battling a highly-competitive home territory, and there are also various challenges facing Zain Africa at their various countries of operations.
    Kamlesh Bhatia, principal analyst at research firm Gartner told Reuters, “a big challenge is streamlining operations across all these countries with limited resource availability. They also have to turn the company around in the fastest time possible.”