Fitch Comments on Potential Transaction Between Bharti and MTN

Fitch Ratings has commented that it will closely monitor developments following the disclosure by India's Bharti Airtel and South Africa's MTN Group that they are engaged in exclusive discussions to potentially acquire stakes in each other, with a view to eventually achieving a full merger.

If the discussions are successful, Bharti will own 49% in MTN, and MTN and its shareholders will own an effective 36% economic interest in Bharti.

The debt ratings agency said that it takes note of the strategic merits of a potential partnership between Bharti and MTN, as well as the positive impact on their respective business risk profiles in terms of diversification and enhanced scale. Nevertheless given the early stages of the discussions, potential regulatory hurdles and other associated uncertainties surrounding the transaction, Fitch will await finalisation of the transaction structure before taking any formal rating action. Under the current terms as presented to the market, it could result in additional net debt of US$4 billion at Bharti and US$2.9 billion at MTN.

Fitch has linked Bharti's current rating to a maximum threshold of 1.5x on FFO adjusted net leverage on a sustained basis. In addition to funding for the proposed transaction, this trigger may also be tested by 3G license requirements, should Bharti emerge successful in the upcoming auction.

Posted to the site on 3rd June 2009