Zain, the Kuwaiti telecom company, will finally sell its African assets to the Indian mobile phone operator Bharti Airtel for 10.7 billion dollars. The talks are exclusive until March 25. Until that date Bharti Airtel may examine Zain’s books. The deal with Bharti excludes Zain’s Sudan and Morocco operations.

Zain entered in talks with Indian Bharti Airtel after refusing offers from the French multimedia group Vivendi and the Swedish-Luxembourg telecom operator Millicom. Zain  Africa is for sale as its profitability disappointed. Zain group has invested 12 billion dollars in 15 African countries during the last 5 years. Zain Africa contributed to only 10 percent of the group’s net profit last year.

Behind the sale, there is the Kuwaiti Kharafi family. They initially triggered the sale process by trying to sell 46 percent stake of Zain group to an Indian-Malaysian consortium at 13.7 billion dollars. The Kharafi group holds 11 percent of Zain group’s shares.  The family has persuaded the Kuwait Investment Authority, the sovereign wealth fund which owns 25 percent of the Zain’s shares, to follow her. It is more and more clear that the Kuwaiti family’s main motivation is to have cash. Like many others Gulf families, Kharafi’s clan has been hit by the crisis. The Kharafi group has tried many times to sell its stake in Zain. The family has been in conflict regarding this sale with Zain’s management. Eventually, Saad Al Barrak, Zain’s long-standing chief executive, resigned before the Bharti Airtel sale was announced.

On the buyer side, Bharti Airtel is eager to expand into Africa. The Indian mobile phone operator failed twice to buy MTN, the South Africa ’s biggest mobile telecoms, for 23 billion dollars.  In this deal with Zain, Bharti Airtel will pay out 9 billion dollars in cash and 1.7 billion dollars to clear the company’s net debt. Some analysts said that this price is too high. The Zain Africa assets will earn about  1.3 billion dollars in 2010, according to these analysts. So the 10.7 billion dollars offer is eight times more.

 However Zain Africa is the opportunity for Bharti to expand on a new continent. Bharti Airtel competes with 11 others mobile companies in India. Analysts agree that the African continent is, even with a low average revenue per user (ARPU), the new market to conquer. To give an idea, Zain had an ARPU of 8.5 dollars in Africa. This is far away from the 23 dollars ARPU Zain receives in the Middle East. Bharti Airtel has probably more chance to succeed than Zain as  this Indian mobile phone operator knows much more about a low-cost and high-growth potential business runs than the Kuwaiti telecom company.

“We sold because we wanted to concentrate on the Middle East, and Bharti wanted to get into Africa," Nasser al-Kharafi, head of the Kharafi Group, told the Financial Times. "It's a fair price and opportunity for both of us." The Kuwaiti group sees "great growth opportunities" in Iraq, Saudi Arabia and Sudan where it has 25 million subscribers. Zain group said it expects to make a profit of up to 5 billion dollars from the African assets sale.