BSNL seeks sharp cut in Zain price

State-run telecom behemoth Bharat Sanchar Nigam Ltd, or BSNL, is ready to pay no more than $10 billion for the 46 per cent equity it is eyeing in Kuwait’s Zain Telecom, much lower than the $13.7 billion tag that the Kharafi family has attached to it.

“We think at the current price the deal will be very expensive,” said BSNL Chairman and Managing Director Kuldeep Goyal, who refused to divulge the figure he had in mind.

Zain Telecom will be the first overseas foray by BSNL, which provides services across India except Delhi and Mumbai, where fellow public sector company MTNL is the service provider.

The Kharafi family, which is selling its holding in Zain, is asking for 2 Kuwati Dinars per share. BSNL executives say this is too high and they will soon convey this to the Vavasi Group.

BSNL and MTNL want to join a consortium led by Delhi-based Vavasi Group. Vavasi, with its Malaysian partner Al Bukhary, has signed an exclusive agreement with the Kharafi family to buy its 46 per cent stake in Zain.

The asking price represents a 49 per cent premium to Zain's current market price. The company has operations in 22 countries in Africa and Central Asia with 70 million subscribers. According to broking firm CLSA, Zain’s return on capital is just 11.1 per cent, as compared to 34.7 per cent for MTN, whose merger talks with Delhi-based Bharti group fell through recently.

Goyal said BSNL would soon conduct due diligence on the Vavasi Group as well as Zain before taking a decision. A Vavasi executive said the price had been fixed by the seller and it would be possible to negotiate it.