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BSNL, Vavasi talks for Zain buy fall through
State-owned Bharat Sanchar Nigam Ltd (BSNL) is likely to exit the consortium comprising Delhi-based Vavasi Group and Malaysia's Al-Bukhary to acquire 46 per cent in Kuwait’s Zain Telecom.

Talks, which have been on for two months, have fallen through over valuations, and Vavasi is expected to announce a new consortium partner in a week or two.

Vavasi Group Managing Director Farid Afruddin declined to comment on this information, but sources close to the development told Business Standard that the new partner may come from Asia (excluding India) or Europe.

Sources close to Vavasi, however, add though it has no option but to look for a new partner, it would be open to re-negotiating with BSNL if the state-owned telecom company is willing to partner a new international telecom company rather than go alone.

Mahanagar Telephone Nigam Ltd (MTNL), the other state-owned telecom party to the consortium, is also likely to exit, since it had agreed to follow BSNL’s lead in the deal.

Earlier, BSNL Chairman and Managing Director Kuldeep Goyal had said the deal was priced too high and it might consider approaching Zain and its shareholders directly if talks with the Vavasi-led consortium failed.

Goyal could not be contacted for comments on the current development and a senior BSNL official said he had no update on the negotiations.

BSNL and MTNL have been in talks with Vavasi for a special purpose vehicle for the Zain acquisition which was pegged at $13.7 billion.

The exclusivity period for talks between Vavasi, a telecom and realty business house, and the Kharafi family, which wants to exit Zain by selling its stake, has been extended from November 18 to January next year according to sources.

The other large investor in Zain is Kuwait Investment Agency which holds 25 per cent and has said it is open to selling, too, if it gets a good price.

Vavasi’s consortium with BSNL and MTNL has been under a cloud after a nine-member joint committee of the state-owned corporations rejected the proposal in September on grounds that Vavasi made losses and had a negative net worth.

Despite this, the management of both corporations decided to overturn the decision and wrote a joint letter to Vavasi on October 3, expressing keenness to participate in the Zain deal. The proposal has the endorsement of Communications Minister A Raja.

Zain, with 65 million subscribers, operates in 24 countries and could be a key acquisition for telecom companies looking at the fast-growing African and West Asian markets. Bharti Airtel, India's largest telecom company by number of subscribers, had said it would look at Zain Telecom if any opportunities arise.

However, the company has been in financial strain and posted a 52.8 per cent fall in third-quarter net profit .

“Unfavourable foreign currency fluctuations, particularly in many of our African operations, reduced interest income and investment income plus higher financing costs have had a significant impact on the company's overall profit,” Zain’s chief executive Saad al-Barrak said in a statement.
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