Bharti's main task will be Zain's turnaround, says IIFL

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Bharti's main task will be Zain's turnaround, says IIFL

In an interview with CNBC-TV18, GV Giri of IIFL says the biggest task for Bharti going forward will be Zain’s turnaround.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Zain's board accepts offer for African assets ALSO READ See latest News about Bharti Airtel See previous management interviews See what other Experts & Brokerages are saying about Bharti Airtel Bharti Airtel BSE | NSE 29/05/12 Are Mutual Funds betting on Bharti Airtel?

In one of the largest cross-border deals, Kuwait-based telecom company Zain, the third-largest operator in the Arab world, is said to have accepted a USD 10.7 billion offer (around Rs 49,700 crore) from Bharti Airtel for Zain's African assets.

In an interview with CNBC-TV18, GV Giri of IIFL says the biggest task for Bharti going forward will be Zain's turnaround.

Below is a verbatim transcript of the interview. Also watch the video.

Q: From what you have seen so far, prima facie, does it look lime and expensive deal or something, which the market may like?

A: I think its not one way or the other because Zain is not a profit making company and this is quite a chunky deal in terms of the revenues of the assets that have been acquired from almost 40% of what Bharti's revenues today are. So it's a fairly big deal. But the point is Zain is not yet a profit making company and it makes a borderline loss - last year it made a border line profit. So the operations have been week and the main task will be to turn Zain around, which I am quite sure Bharti's management would have a plan for.

But depending on how much that turnaround quantum is and how quickly it happens that will be an impact on earnings and that is what the market will be waiting for. If that impact is not material then I don't think its bad deal at all but we will have to wait for details on that. We are talking of FY12 earnings.

Q: How strong is Zain in the markets that it operates in, in that if this deal goes through how much of instant market share does Bharti get in some of these African markets?

A: In most of the markets Zain is the first or second and in one or two odd cases third. Maybe in Ghana where it entered recently - it's fourth. So it isn't an insignificant operation in any of these countries.

Q: Do you think the markets response over the next few sessions will be guided more by the price it's paying or by strategic benefit of such a deal?

A: That strategic benefit is really the issue here. So I think the price is more or less in the ballpark one would expect it but the strategic benefits have to come out in numbers.

Q: Are you clear about the debt ramifications because it does have a pile of debt on its books but we are not sure about whether Bharti takes that on or not?

A: Zain cumulatively has about USD 6 billion and I am not very sure how much of that comes with this asset sale but I presume that the offer made includes the value of the debt.