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Bharti-MTN: A Billion Subscribers in Sight?
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.
BSE’s Sensex Surge
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.
India’s New Government: Continuity in Reforms
‘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.
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