Bharti-MTN deal: Banks take $200-mn hit on no-show
October, 03rd 2009
Banks are set to lose potential fee of over $200 million due to the failure of the Bharti-MTN transaction. Advisors and bankers to Bharti have lost about $120 million, while MTNs bankers and advisors are believed to have lost another $80 million.
Standard Chartered was the lead advisor to Bharti, while Barclays was the joint M&A advisor. StanChart, besides advisory, had also offered an underwriting commitment of $5 billion to Bharti. Bharti had instead tied up with eight banks for overseas loan of $3-3.5 billion.
Also, SBI and Kotak Mahindra were mandated for rupee loans of $1.5-2 billion. This financing would have earned the bankers fees of around 150 bps which amounted to around $75 million. The banks that had been finalised for the foreign currency loan to finance the foreign currency component of the loan to fund its mega merger with African telecom giant MTN included ANZ, Barclays, StanChart, Citi, BNP Paribas, Bank of Tokyo Mitsbushi and UFJ Financial. The fee pool for MTNs bankers would have been in the range of around $80 million.
This includes the financing fees. According to the proposed deal, MTN would have had to pay Bharti $2.9 billion in cash. Sources said including refinancing, MTN was scouting for a $4-billion loan. The financial advisors to MTN include Bank of America Merrill Lynch, Deutsche Bank and Arma Partners. Bankers feel the total fee from managing equity and debt issuances and advising M&A deals this year would be in the range of $700-800 million.
Had its proposal to fund the entire amount been accepted, StanChart would have earned $75-100 million in fees alone. The deal would have been a major feather in the cap for Prahlad Shantigram, head of Stancharts global head of M&A. This would have been the largest deal the bank would have done, which would have helped it cement its top position in the country.
Barclays came into the picture because of its strength in South Africa, where it owns a majority stake in one of the largest banks in South Africa Absa. The deal would also have helped the investment banking business of Barclays Capital, which was formed last year when Frank Hancock MD, head of M&A in India, along with four MDs and a team of 60 bankers, walked out of RBS to join Barclays in Hong Kong, London, Dubai, Moscow and Mumbai.
For Saurabh Agrawal MD and head of investment banking in India for DSP Merill Lynch the deal would have helped the entity regain some of its lost ground post the financial crisis and the merger with Bank of America. For Amrit Singh, MD and head of M&A in India of Deutsche Equities, who moved to India last year from the London office, this would have been one of the biggest deals which the bank was involved in India.
For the bank, this would have been the second-largest deal after Tata Corus. Incidentally, Tom Wells, partner, Arma partners, joined the firm from Merrill Lynch where he was the MD and head of telecom investment banking for Europe, the Middle East & Africa, based in London. According to bankers, Mr Wells was one of the reasons that Arma got into the fray as he was earlier involved in the deal during his stint in Merrill.
The importance of the fee pool can also be gauged from the fact that there has been no big M&As from India this year. With the slowdown in the larger M&A transactions, the total fee pool for a stand alone M&A advisory is likely to be around $100 million, according to a couple of senior bankers. The fee from equity capital market is likely to be in the range of $150-200 million, while for institutional brokerage it is likely to be around $400 million.
Goldman Sachs, which was the banker to SingTel, would have also seen a fee loss of atleast $15 million. SingTel was slated to invest around $2.8 billion into the deal, which would have helped it to maintain its current stake. Some of the smaller shareholders in MTN wanted cash instead of Bharts shares. The Singapore company was looking to pick up this stake and offer cash, which would have been given to the MTN shareholders.
Incidentally, some of the bankers have spent over two years on the deal. This time around, the deal talks started off in February. Though most of the conversations were initially through e-mails, bankers were worried over secrecy. That could have been one of the reasons that meetings between both the parties were held in neutral locations such as London and Dubai too.