Kuwaiti telecoms firm Zain said it would pocket around half of the proceeds from its planned $10.7 billion sale of African assets to Bharti Airtel and use the rest to pay off debt, sending its shares soaring.
Zain, which released more details of the proposal on Tuesday as the Kuwait Stock Exchange lifted a two-day trading halt on its shares, said it expected to see up to $5 billion in returns from the deal after it pays off debt.
If the deal goes through Zain will be a winner and will concentrate on Arab countries. They will have liquidity for other opportunities, said Mustafa Behbehani, director at Gulf Consulting Co in Kuwait.
Zain's plans for the cash underscored how far the Kuwait-based firm extended itself with acquisitions in Africa and how the proposed sale to Bharti will give it a possible war chest to consolidate in the Middle East.
(A return of) 5 billion (dollars) is definitely possible (depending) on three things, said Richard Barker, analyst at Credit Suisse.
Firstly, they get the full price. Secondly, they actually get the deal and thirdly, the refinancing of other debt facilities.
The company has spent some $12 billion on its African operations since 2005 alone and is keeping its Sudan and Moroccan interests if the Bharti sale goes through.
Distribution of any special dividend from the sale would be a decision for Zain's board and shareholders, the company said in a statement.
In a hint that a payout is more likely, Zain's former chief executive, Saad al-Barrak, who still heads its Saudi Arabian unit, said Zain will have more than doubled its initial investment of $3 to $4 billion in Africa with the Bharti sale and that shareholders had wanted to cash out.
Bharti Airtel confirmed on Monday it is in exclusive talks to buy Zain's African assets, excluding Sudan and Morocco.
The deal marks one of the biggest cross-border transactions ever in the Middle East and a turning point for the third-biggest telecoms operator in the region.
Zain shares surged to a 15-week high after the Kuwait bourse lifted a trading halt, climbing 9.3 percent to 1.18 dinars, while shares in Bharti Airtel fell a further 4.5 percent to 273 rupees as investors gave a thumbs down to the proposed deal.
Bharti is likely to finance nearly all the deal's purchase price with foreign currency loans, three people familiar with the matter said on Tuesday.
The move by Bharti, which is 30 percent-owned by Singapore Telecommunications Ltd , follows two failed attempts to buy South Africa's MTN Group in a $24 billion deal.
Bharti has been hunting for emerging market assets as its home turf becomes fiercely competitive. New entrants into the world's fastest-growing mobile market have triggered a vicious price war which has seen some call charges slashed to a fraction of a U.S. cent.
Zain said the deal includes a $150 million break fee, payable by either side, if the deal fails.
After a history of failed deals for both sides, some doubts linger as to whether the deal will go through. A major Zain shareholder said in September it would sell a 46 percent to an Indian-Malaysian consortium in a deal that has failed to materialize.
Separately, Zain Saudi Arabia <7030.SE>, which is 25-percent owned by the Kuwait-based group, said it would seek to raise $1.14 billion through a share issue and convert $577 million in debt into shares.
Kuwait's Zain said the expected returns from the deal would enter the firm's books in the second quarter of 2010.
(Additional reporting by Diana Elias, Tony Munroe, Jason Benham, Amran Abocar; Editing by Thomas Atkins, Greg Mahlich)