India's telecoms sector, which is grappling with an enormous corruption scandal, slowing revenue growth and waning profitability, could still be poised to attract fresh investment from the GCC.
A corruption case, which resulted in the supreme court's cancellation of 122 licences last year, prompted Etisalat and other telecommunications operators to leave the Indian market.
The licences were said to have been sold below their market value by the telecoms minister at the time, A Raja, who was jailed for what has been described as India's biggest scam, with an estimated loss of some US$40 billion (Dh146.92bn).
Etisalat became embroiled in the case because it bought into Swan Telecom, which had already acquired the 2G, or second generation, licence.
"While the controversy around 2G spectrum issues would have a bearing, we believe the GCC telcos may still be open for investments once regulatory policies crystallise," said Yogesh Kirve, a telecoms analyst at AnandRathi Financial Services in Mumbai.
"India is a large market with better growth prospects than developed countries and many developing markets. The rehabilitation phase - expected over the next few years - for the industry may also potentially throw up attractive investment opportunities."
Etisalat is not pursuing re-entry into the Indian market in the fresh auction of the licences and did not respond to requests for comment on whether it was considering re-entering India in the future.
But Bahrain's Batelco, which also lost its licence in India through the corruption scandal, last week said that it was looking at opportunities to re-enter India through an acquisition of an existing company.
It ruled out buying a licence to set up a new telecoms company in the country, however.
"It is unfortunate that some of the telcos suffered a grave setback owing to the cancellation of licences by the country's apex court during early 2012," said Rajan Mathews, the director general of the Cellular Operators Association of India. "However, that does not mark an end, either for the sector, or for foreign investment coming into it.
"Though the policy and regulatory uncertainty has deterred investor sentiment, remedial measures are being initiated by the government at the same time and we can hope for a renewed investment and participatory environment for foreign companies in the near future."
High reserve prices resulted in a muted response to the auction of licences in November.
But last week, a 50 per cent cut was approved for the auction price of the 800 megahertz spectrum.
This could however result in further confusion, said analysts.
"What this means is you have a higher efficient spectrum, in 800mhz, being sold at a lower cost than 900mhz. That is not going to really go well with operators," said Sivarama Krishnan at PricewaterhouseCoopers in India.
"So potentially that could bring about litigation for the government as well as operators."
He said that lack of clarity on reforms in the sector and competition was negatively affecting the investment climate.
"We do not see a high level of interest, unlike in 2008," said Mr Krishnan. "It's very subdued. There are operators who got a licence who want to sell it off. Clearly there are more sellers than buyers today in the market.
"Due to still unclear policy the investment is stalled," he added. "Still there is not open skies for people to enter India. The India story doesn't exist today."
Mr Kirve also pointed out the significant challenges that remain.
"The industry revenues are growing 7 to 8 per cent, though profits continue to decline due to cost inflation, currency depreciation and limited pricing power. Volume growth is slowing and trend is expected to continue," he said.
"While things are beginning to improve, both on competition and regulatory fronts, the investment climate continues to be challenging.
"Maturing voice markets, low tariffs, high competition and rising cost of spectrum ownership are key challenges for the industry. These factors have made business case for new or smaller telcos vulnerable."
business@thenational.ae
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Starring: Cate Blanchett, Kevin Hart, Jamie Lee Curtis
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The specs
Engine: 2.7-litre 4-cylinder Turbomax
Power: 310hp
Torque: 583Nm
Transmission: 8-speed automatic
Price: From Dh192,500
On sale: Now