Nomura optimistic about African deal

The markets: What's up - Zain Price target raised as Japanese bank's confidence increases.

DUBAI // Count the investment bank Nomura among those who think Zain will overcome any objections of minority shareholders to sell its Africa operations. Nomura yesterday raised its price target for Zain by 20 per cent, from 1.11 Kuwaiti dinars to 1.34 dinars. The Kuwait-based telecommunications company is in exclusive talks until March 25 with Bharti Airtel, India's largest telecoms operator by subscribers, to sell its Africa operations, excluding those in Sudan and Morocco. The deal is estimated to be worth US$10.7 billion (Dh39.3bn) and Zain expects net proceeds of up to $5bn.

"We believe the fair value of the implied deal is likely to be largely reflected in the share price," Martin Mabbutt, an analyst at Nomura, wrote in a note to investors. Mr Mabbutt said the likelihood of the deal going through appeared high and would probably produce a "large special distribution to shareholders during 2010". There are, however, some hurdles yet to be cleared. Two minority shareholders of Zain Nigeria - Econet Wireless Holdings, a South African telecoms company holding 5 per cent of Zain Nigeria, and Broad Communications, which holds a 14 per cent stake in the unit - have filed legal challenges to Zain's ownership of 65 per cent of Zain Nigeria.

Nabil bin Salama, the new chief executive of Zain, however, downplayed the legal challenges last week. "We are in a good position and we don't see a problem." While Nomura is upbeat on the deal - which would be one of the largest cross-border transactions in this region if it is completed - it maintains a "neutral" outlook on the stock overall. The Japanese bank noted that Zain operated primarily in emerging markets, where its financial performance was subjected to political and economic volatility. Zain's shares are up about 40 per cent this month at 1.28 dinars, even after yesterday's fall of 3 per cent. @Email:[e-mail]