Etisalat in Dh1.8bn stake sale bid

Etisalat, the UAE's biggest telecommunications operator, expects to raise US$502 million selling most of its stake in Indonesian mobile operator XL Axiata.

Etisalat aims to raise up to $502 million in the sale of its stake in the Indonesian mobile operator XL Axiata. Jumana El Heloueh / Reuters

Etisalat, the UAE's biggest telecommunications operator, expects to raise US$502 million (Dh1.84 billion) selling most of its stake in an Indonesian mobile operator and analysts say further foreign divestments are likely to follow.

The company yesterday revealed it would reduce its 13.29 per cent holding in XL Axiata, which it bought for $440m in 2007.

"Etisalat has initiated a process to sell-down its stake in PT XL Axiata," said Serkan Okandan, the chief financial officer at Etisalat Group, in a statement to the Abu Dhabi Securities Exchange (ADX).

Etisalat aims to raise up to $502m in the sale, in which it is offering XL Axiata shares at a discount of up to 9 per cent on yesterday's closing price, Reuters reported.

Analysts said Etisalat's failure to gain full control of the Indonesian business could be behind its decision to reduce the holding.

"We could categorise this sale as a rationalisation," said Matthew Reed, a senior analyst at Informa Telecoms & Media in Dubai.

"If they weren't going to develop it into a more substantial holding - maybe there wasn't a strategic reason to hang on to it."

Petr Molik, the head of the research division at Mena Corp, said the Indonesian holding was "not a distressed asset", and the move by Etisalat marked a "refocus of the group" on its core markets.

"They are not necessarily in the position of a fire sale, to sell it quickly ... They can take a couple of months," he said.

Etisalat has embarked on an ambitious international expansion drive over recent years but several of its foreign ventures have been underwhelming.

"Etisalat spent more than Dh46bn between 2004 and 2009 on acquisitions of companies, licences, minority holdings and investments.

"Some of them were successful, the majority of them were lacklustre or failures," said Mena Corp in a research note on Tuesday.

Mr Reed mentioned other markets Etisalat may withdraw from. "They have talked about making some sales, so it's not unlikely," he said. "They have talked in the past about selling Etisalat Afghanistan."

Mr Molik said other "auxiliary" markets such as Sudan and some of Etisalat's African operations could also be earmarked for a sale.

"It wouldn't surprise me if they decided to sell any of these markets," he said.

Mr Molik characterised the move as Etisalat refocusing on its core markets. He said the operator remained committed to its international markets.

"Strategically, they still wish to expand internationally in the long term," he said.

Indonesia is not the first international market that Etisalat has retreated from this year.

A company in India in which Etisalat was a joint venture partner was among several operators to have mobile licences revoked in what became one of the country's largest corporate scandals.

The alleged malpractice in the allocation of second generation (2G) mobile phone licences predated the UAE operator's arrival in the market, however, and there was no implication of any wrongdoing on Etisalat's part.

The UAE company said last week it would not be bidding for 2G licences in a new auction in India.

Etisalat, which is 60 per cent owned by the UAE Government, operates in 17 countries across the Middle East, Africa and Asia.

In July the company reported a turnaround in its financial performance, having posted a net profit of Dh1.9bn in the second quarter, a rise of 17 per cent on the same period last year. It had reported declining profits in eight of the previous nine quarters.

Etisalat's foreign operations account for 28 per cent of its top line, with overseas revenues having grown to Dh2.3bn in the second quarter of this year, a 14 per cent increase on the same period last year.

Eissa Al Suwaidi, the Etisalat chairman, said earlier this year that its growth in profits was "on the back of strong market development in Egypt, Benin, Gabon, Togo, Afghanistan and Sri Lanka".

Shares in Etisalat yesterday closed unchanged at Dh9.55.