Bharti AirtelBSE 0.10 % has signed a pact to sell 100% of its operations in Burkina Faso and Sierra Leone to Orange SA for around $900 million (Rs 6,030 crore), but its exclusive talks to sell businesses in Chad and Congo Brazzaville to the French company lapsed.
Airtel has been looking to sell its operations in Burkina Faso, Chad, Congo Brazzaville and Sierra Leone, all Francophone countries, or non-English speaking markets in Africa, a continent where the company has been making losses since its entry in 2010, which has been dragging the carrier's consolidated financials.
"The outlay for Orange for these transactions will be based on the financials of Airtel's two arms for the year ended March 31, 2016, and will represent the equivalent of 7.9 times Airtel's EBITDA in these two countries at this time," the two firms said in a statement issued on Wednesday. The consolidated revenue of the two companies in the deal is around 275 million euros (Rs 1,986 crore).
While Bharti Airtel and Orange didn't divulge the size of the deal, sources pegged the value at around $900 million, around the same estimated by analysts. The proceeds are expected to be used to retire a part of Bharti Airtel's $10.8 billion debt.
"Assuming a 35% margin (these are meant to be two of the more profitable businesses), this implies around $800-900 million in asset sales," Sachin Gupta and Pankaj Suri of brokerage firm Nomura said in an internal note. Brokerage Kotak pegged the deal at about $950 million, based on 40% earnings before interest, tax, depreciation & amortization (Ebitda) margins.
The pact for operations in the two countries will be implemented in partnership with Orange's arms in Cote d'Ivoire and Senegal, and are subject to approval by authorities, the statement said. Investors initially gave a thumbs up to the deal, with the Airtel stock rising 2.3% in intraday trade on Wednesday on expectations of reduction in debt, which has been weighing on consolidated financials, and also on the fact that the valuations are higher than what the market estimated.
But the shares closed 2.1% lower at Rs 308.70 on fears that with two of the six profitable operations of the 17 markets in Africa sold, Airtel is saddled with more of the loss-making countries, which will weigh on the consolidated financials, and may prove difficult to dispose of. The two companies had revealed last July that they had entered into exclusive talks regarding the potential sale of Airtel's operations in Burkina Faso, Sierra Leone, Chad and Congo Brazzaville to Orange.
Sources said while talks over Chad and Congo Brazzaville had lapsed, there is a possibility that they may be revived at a later date. Analysts say the primary reason could be Orange's interest to mainly buy Airtel's profitable operations, with valuation talks over the two loss-making markets stuck. They add that the valuation for the current deal for the two countries—which accounts for 7% of Bharti Africa's revenue and has 5.5 mn subscribers—is at a premium to market estimates.
"The company has disclosed that valuation is 7.9 times...This is at a premium to both the multiples implied by our target value for Bharti Africa at 5.4...and MTN's current trading multiple of 4.2," Citi Research said in an internal note.
Nomura noted that revenue from Burkina Faso was around $190 million—5% of Airtel's Africa revenue—and Sierra Leone contributed around $100 million. "Burkina Faso generated $10 million in earnings, while Sierra Leone contributed $4 million".