The Hindu Business Line : Bharti may see burden in balance sheet

Reports of Bharti Airtel’s exploratory talks for the acquisition of South Africa-based telecom major – MTN group, have been viewed with concern by the stock markets, with the stock marked down by 5.2 per cent on Tuesday’s trading. Given the $39.2-billion market cap of MTN, the markets apprehend that funding costs for the buyout may burden Bharti’s balance sheet, by way of debt or equity dilution, should there be a majority stake acquisition.

On a market capitalisation basis, MTN ($39.2 billion) almost compares to Bharti Airtel ($40 billion) in size, suggesting that in the event of a stake acquisition, the funds required would be quite high. Bharti’s balance sheet at the end of the last fiscal indicates that it held cash to the tune of Rs 677 crore and short-term investments of Rs 4,808.6 crore, totalling up only to about $1.4 billion.

This suggests that, apart from internal accruals, other modes of financing with debt/equity dilution may have to be explored, for a significant stake.

MTN operates with 68.2 million mobile subscribers in South Africa and 20 other countries spread over the African continent and middle-eastern region.

The services also include 3G services such as HSDPA and other value-added services such as mobile TV and mobile banking. MTN group’s Web site shows that the group has a presence in select high ARPU (average revenues per user) market, with ARPUs generated ranging from $9 in Yemen to $44 in Cyprus. South Africa with an ARPU of $19.2 generates around 40 percent of its revenues. For the 2007 fiscal, the company’s revenues stood at $9.73 bn. (@1ZAR=0.133 USD)

Diversity helps

For Bharti ($6.75 billion revenues, 64.2 million subscribers), whose ARPU from mobile services stands at about $8.8, the buyout could give access to high revenue generating markets.

The foray may help realisations, in a scenario where Indian tariffs are steadily being lowered to penetrate rural geographies.

With its Sri Lankan 3G rollout expected later this year, Bharti’s overseas expansion reflects a move towards ‘next generation services’ and better realisations overseas, while the domestic business continues to thrive on a low-cost model.

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