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Etisalat Bids For 46% Stake in Kuwaiti Zain

Middle East : 02 October 2010

Emirates Telecommunications Corp (commonly known as Etisalat) made an offer for a substantial stake in Kuwaiti telco Zain that would boost Etisalat’s growth in Middle East markets.

A spokesman for Etisalat, Ahmed bin Ali, said that the firm had put an offer to Zain on the table that was both conditional and preliminary.

Experts warn that a potential deal could have a host of challenges to deal with in Saudi Arabia, where both firms involved have a market share and regulations may present a problem.

The general manager for the Al Joman Center for Economic Consultancy, Naser al Nafisi, noted that the difficulties lie in the current state of competition in the market.  In Saudi Arabia, Etisalat owns Mobily, which competes with Zain Saudi.  If Etisalat takes over Zain it will be competing against itself.

Etisalat owns the largest portion of shares at Etihad Etisalat (known as Mobily).  The other two telecoms in the region are Saudi Telecom (or STC) and Zain Saudi.

Sources involved state that Etisalat made an offer to the Kharafi Group, the major shareholder of Zain, for its share at 1.7 dinars ($5.97) per share.

It was reported on the CNBC Arabiya TV station that Etisalat had offered for a 46 per cent stake at 1.7 dinars per share, bringing the total offer close to $12 billion.

Chief investment officer at CAPM Investments, Mohammed Ali Yasin stated that experts felt the price per share was a little expensive, but also that it was certain Etisalat had calculated an advantage at that price.

Zain stated that the management did not have an offer in their hands.  Zain is third largest telecom company in the Gulf Arab region.

It was reported on the Al Arabiya news station that the National Bank of Kuwait was advising Etisalat while the Kharafi Group was being advised by BNP Paribas.

Kharafi, a family-run Kuwaiti firm, holds 12.7 per cent of shares in Zain through a single branch of its operations.  But when looked at overall, it is estimated that Kharafi controls almost 20 per cent of Zain through other firms under its umbrella.  The Kuwait government also has a 24.6 per cent stake in the telecom.

There have been attempts to sell the group’s stake in Zain for over 12 months in an effort to generate liquidity.

There is a powerful incentive to sell coupled with an attractive price, said Nafisi.  He noted that shares would be auctioned with the guidance of Kuwaiti bourse regulations and there was not likely to be a higher bid.

This deal might cause minority shareholders to lose influence and power to a majority shareholder.

Nafisi noted that 46 per cent would become a controlling stake considering the Kuwaiti government is generally a silent partner at 24 per cent and the balance of the shares are spread out.

Head of asset management for Securities and Investment Co Bahrain (SICO), Shakeel Sarwar, warned that because there are no M&A regulations in Kuwait to look after the minority shareholder’s rights, the price of Zain shares may collapse after a sale.

Zain shares reached a four-month high on the Kuwait bourse, rising 7.9 per cent to hit 1.36 dinars.

Etisalat has a presence in 18 countries, from the UAE to Egypt and India.  A vast majority of revenue (85 per cent) is generated in the UAE and the telco is making expansion attempts after its monopoly collapsed at home.

Earlier in 2010 the chairman of Etisalat talked about an interest in Reliance Communications of India, namely a 26 per cent stake.

Etisalat has acquired companies from outside the Gulf, including Nigeria and Indonesia, but its only other Gulf presence outside of the UAE is in Saudi Arabia’s mature market.

Telecom analyst from IHS Global Insight Shardul Shrimani noted that this deal gives Etisalat new exposure to markets like Lebanon and Iraq, booming areas that the firm has previously shown interest in.  Also, the Saudi connection allows the firm access to other steady markets like Jordan, Kuwait and Bahrain.

African assets in Zain were shaved off in the beginning of 2010 through a $9 billion deal with Bharti Airtel of India.  A majority of those proceeds were dispersed to Zain shareholders.

The recent worldwide economic crisis has hit certain investment houses and Kuwaiti families, such as the Kharafi group in Zain.

Shares for Etisalat were performing marginally better than the Abu Dhabi bourse, up 0.9 per cent.

Andrew Reid, Staff Writer, Gulf Jobs Market News
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