The potential merger of India’s largest GSM mobile telecom service provider Bharti Airtel Ltd and South Africa's largest telecom company MTN Group Limited highlights the attractiveness of fast-growing telecoms markets in India and Africa and reinforces India Inc.’s global ambitions undeterred by the worldwide economic slowdown.

The companies are buying international scale and growth in the world’s fastest growing telecoms markets of India and Africa. Global telecom companies are drawn to India’s market estimated to grow to more than one billion subscribers by 2014 from about 400 million currently as 10 million new subscribers are added each month. The month of March 2009 saw the highest monthly subscriber additions in the world at 15.64 million. Africa’s telecommunications growth is driven by its 360 million mobile users who account for 90% of all subscribers, growing at about 40% per year.

The Bharti Airtel and MTN Group combine will create a leading emerging market telecom operator with more than $60 billion in market value, revenues of about $20 billion and over 200 million subscribers. The combined entity will be amongst the top five service providers globally with operations spanning more than 23 countries in Asia, Middle East and Africa.

The new entity will enjoy better pricing power in the market, lower costs on account of shared infrastructure and resources, better purchasing power with suppliers, doubling up of subscribers to 200 million that will gradually result in more average revenue per user (ARPU) as new mobile applications and services are offered to them.

The merger of Bharti and MTN will be India’s biggest cross border deal at almost twice the value of the acquisition of U.K.’s top steel maker Corus Group Plc for $12 billion by India’s Tata Steel Ltd in January 2007. It also surpasses the acquisition of Hutchison Essar Ltd, India’s second largest GSM mobile service provider then by the U.K.’s Vodafone Group Plc for $11 billion, by more than a similar margin.

This one deal worth $23 billion will almost match the value of the 280 cross-border mergers and acquisitions last year at $25 billion. It marks the grand entry of India as an acquirer in the international telecoms industry, just as previous years saw India Inc. buy into international steel, auto and IT industries.

The telecommunication sector has been a significant driver of merger and acquisition (M&A) deals in India accounting for the highest share of deals at 18.6% and 22% during the last two years with values of $5.7 billion and $11 billion in 2008 and 2007 respectively. The total number of M&A deals during the first four months of 2009 at $2 billion against $9.43 billion during the corresponding period last year illustrates the impact of the economic slowdown.

India’s Dalal Street, home to the Bombay Stock Exchange was a busy address on Monday, May 18th creating history with euphoric investors leading the benchmark Sensex index to surge more than 17%, the highest ever increase in a day this year.

The main stock index rose more than 28% in May, its strongest monthly performance in 17 years, boosted by positive economic news and hopes for market-friendly reforms. Asia's third-largest economy grew a faster-than-expected 5.8% in the March quarter.

The overwhelming response on the first trading day following the victory of Indian National Congress led United Progressive Alliance (UPA) in the General Elections represents the stock market’s vote for stability and continuity.

India’s high gross domestic savings rate of 30.7% compared to the 1.8% in the U.S. and 1% in the U.K. is indicative of the lower propensity to invest among Indian households and hence signifies the scope of potential investments that can move in to the Indian Equity Markets.

The first signs of the investors’ confidence in the expected outcome of the elections came on Friday May 15, as Foreign Institutional Investors (FIIs) made a net investment of $205 million (Rs 983.86 crore) while domestic institutional investors made a net investment of $90 million (Rs 432.47 crore) in equities, taking the BSE's benchmark index to cross 12,000 level.

‘Stability and Continuity’ as the prescription of economic revival and growth reflected in the victory of the Indian National Congress led United Progressive Alliance (UPA) in India’s General Elections for the 15th Lok Sabha or the House of the People.

The United Progressive Alliance (UPA) won a second consecutive term in Parliament with an increased majority, in an affirmation of its economic policies of continued liberalization and reforms. The outcome will usher a new wave of confidence globally in the Indian economy with expected ramp up in economic activity.

The government will have its task cut out as sectors like infrastructure, power, telecommunication, pharmaceutical among others are in urgent need of investments estimated at more than $700 billion over the next five years to provide the country a strong foundation to achieve a target GDP growth of 10%.

The Government would be best served if it continued and augmented the ‘India Shining’ policies that currently sustain a Gross Domestic Product (GDP) growth of more than 7% as India continues to defy negative GDP growth seen in many Western economies.

With the allocation of ministries finalised as part of the government formation, various sectoral reforms, including Financial – Insurance & Banking, Retail, Aviation, etc are keenly awaited to facilitate higher foreign investments. The hotly debated issues of divestment of public sector undertaking (PSUs), apart from reforms related to pensions, labour and taxation are also expected to get due attention.

Bundeep Singh Rangar
Chairman, IndusView
Bundeep.Rangar@IndusView.com
www.indusview.com