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| Balance sheet may stagger a bit: Analysts |
| Nevin John / Mumbai May 27, 2009, 00:28 IST |
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Sunil Mittal’s plan to merge his Bharti Airtel — India’s biggest mobile-phone operator — with South Africa’s MTN, coupled with the company’s 3G foray, is likely to put pressure on its balance sheet, as the estimated cash requirement would be Rs 40,475 crore in this fiscal.
Brokerages expect a net cash outflow of Rs 19,048 crore from Bharti in the proposed deal, under which it would pay cash and shares for 49 per cent of the South African firm, and MTN pays cash and stock for a 36 per cent stake in the Indian firm. Bharti will receive cash of Rs 13,856 crore from MTN and pay Rs 32,877crore for acquiring MTN shares.
“Raising debt to fund the deal would increase the leverage for the two companies, but it would still be in a comfortable position,” said ICICI Securities in its report on Tuesday. However, the report noted that further spending by Bharti on 3G spectrum acquisition and rollout will likely stretch its balance sheet.
Macquarie, in its report, said Bharti would face little difficulty in arranging the net cash requirement of Rs 19,048 crore to finance the deal. “In 2008, when Bharti engaged in merger talks with MTN, it was able to receive a capital commitment of far larger amounts from a string of international banks at very attractive rates,” the report said.
Bharti, which has Rs 1,200 crore cash and cash equivalent on its books, will need Rs 7,143 crore for the 3G spectrum license and rollover, in addition to its capex requirement of Rs 14,285 crore during this fiscal, said an analyst of ICICI Securities. He added that part of its requirement would be met through the expected cash flow of around Rs 15,000 crore. The company has over Rs 4,730 crore debt on its books.
The highly leveraged acquisitions of Indian companies have run into rough weather after the economic downturn and stock market crash. The list includes Tata Motors’ acquisition of Jaguar and Land Rover from Ford and Tata Steel’s takeover of Anglo-Dutch steelmaker Corus and Hindalco’s of Novelis. Though Bharti-MTN is not a leveraged buyout, the debt burden, combined with other expenditures of Bharti, would affect the balance sheet if the economic condition continues, said a Mumbai-based analyst.
ABN Amro estimated, at least Rs 14,190 crore of additional debt at an interest rate of 5.3 per cent would be added on Bharti’s books. “While the deal could help Bharti realise its long-cherished goal of having a global footprint, we believe the impact on medium-term earnings will hurt valuations,” said ABN in its report.
Bharti’s net outgo of Rs 19,048 crore should be manageable, given consolidated EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortisation) of Rs 47,300 crore, said Citi in its report.
Bharti’s net debt-equity may rise to 0.8 from the current 0.22 after the deal. It will rise further, following the 3G foray and planned investment for capital expenditure. It requires Rs 9,460 crore as capex for this fiscal, while its subsidiary, Bharti Infratel, needs Rs 4,730 crore for expansion of Indus Towers, a joint venture between Bharti, Vodafone and Idea. Bharti Infratel holds around 42 per cent in Indus.
The talks of Bharti and MTN could lead to a merger, creating one of the world’s biggest cell phone groups by subscribers, through the combination of India’s biggest operator and MTN, which has networks across 21 African and West Asian markets.
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