Concerns grow over Zain deal

The sale of a large stake in the Kuwaiti mobile operator would be GCC's largest foreign takeover, but shares go down amid doubt on who is paying what for firm.

A Kuwaiti politician has said that a lack of transparency in the Zain deal could negatively affect the stock exchange and the economy.

Zain shares continued to trade heavily as concerns mount over the lack of information about the sale of a large stake in the Kuwaiti mobile operator in what would be the GCC's largest foreign takeover. Adding to the unease were remarks by the Kuwaiti opposition politician and former speaker of parliament, Ahmad al Saadun who, in a question to the finance minister, said the deal's lack of transparency could "have negative implications on the Kuwaiti bourse and national economy".

Zain shares finished trading yesterday at 1.28 Kuwaiti dinars (Dh16.42), down 18 per cent from the previous Sunday, when the company's chief executive, Saad al Barrak, acknowledged that a stake in the company was in the process of being sold. That acknowledgement was the only comment from Zain in a week where a controlling stake in the company was publicly announced to be on the auction block. It preceded a statement by Kuwait's Kharafi Group, which is orchestrating the sale.

Kharafi's statement, that it was preparing to sell a 46 per cent stake in Zain for US$13.7 billion (Dh50.32bn), was soon followed by a press conference where Kharafi introduced a consortium of buyers led by India's Vavasi Group. Yesterday, investors and analysts said a lack of information on the agreement was damaging confidence in it. The uncertainty about a number of aspects of the deal, including the price, the make-up of the consortium of buyers and which shareholders were able to participate in the sale, have led to the decline in the share price.

"There is no clarity at all and something really has to come from the companies, from the management," said Chandresh Bhatt, the assistant vice president of equity research at Global Investment House in Kuwait. "This lack of clarity is becoming a major issue." While Kharafi originally said the Vavasi-led group would buy the stake for two Kuwaiti dinars a share, the Vavasi managing director, Farid Arifuddin, said the price was still under discussion.

Two large Indian state-owned telecoms, originally announced as members of the consortium, quickly put out statements saying they had not made any decision on joining the purchase. "Transparency is a big issue, and it looks like the share price is going down because there is concern that the deal might not go through," said an executive at an investment bank, who asked not to be named because his company was still advising clients on the sale. "Nobody is clear about anything right now."

Both Zain and the Kharafi group have declined requests for comment and neither party has issued stock market announcements or press releases. Analysts said another trigger for selling was the feeling among minority shareholders that they would be left out of the deal. While Kharafi officially owns about 10 per cent of Zain, many believe it has lifted its holding to between 20 and 25 per cent. Mr Bhatt said he believed Kharafi had already assembled a group of sellers that held the required 46 per cent stake. If that is the case, shareholders not in the group have little hope of selling at a similar price to that of the sale.

Kuwaiti telecoms investors said the scenario reminded them of the 2007 sale of Wataniya, another local telecoms company. Qatar's Qtel bought a controlling stake in Wataniya from a group of sellers led by the Kuwait Projects Company (Kipco), paying a hefty 52 per cent premium to the market price. But shareholders not invited to join the Kipco consortium could not take part in the offer. Another financier, who also asked not to be named because of sensitivity in the market surrounding the acquisition, said the declining share price would be halted by a more detailed acquisition announcement.

"I think it's selling at a lower price right now because there's no incentive to buy at a higher price," he said. "Nothing has been officially signed at this point. Since it is all speculation, it makes sense that people will play with the market. Over the long term, as the deal becomes more substantiated, I expect the price will go up." * additional reporting by James Calderwood in Kuwait City [e-mail]