Investors welcomed Etisalat's statement yesterday that it had not submitted a bid or made a proposal to purchase a stake in Zain, the Kuwaiti telecommunications operator. The statement followed a report from a Kuwaiti newspaper, citing unnamed sources, that Zain was in talks to sell a majority stake to Etisalat. Etisalat shares climbed almost 1 per cent, to Dh10.45, on the Abu Dhabi Securities Exchange yesterday. Over the past 12 months, Etisalat shares have outperformed the Abu Dhabi market, increasing by 21.6 per cent. It seems that investors noticed how purchasing a Zain stake could pose a significant risk to Etisalat's bottom line. As the Kuwaiti operator has a market valuation of 4.8 billion Kuwaiti dinars, Etisalat would have to reach deep into its pockets and borrow heavily to make the investment. Etisalat booked Dh11.3bn in cash and cash equivalents at the end of last year.
There are some synergies that could help make a tie-up work. Zain, after last month's sale of 15 of its African businesses to Bharti Airtel, operates in eight countries with 31.4 million subscribers. Of those eight countries, Saudi Arabia is the only one where the two operators compete against each other. But any potential deal would require the approval of the kingdom's telecommunications regulator. As both Etisalat and Zain have poured billions of dirhams into their operations there, it is far from a sure thing that Saudi would approve such a merger.
Zain's Saudi and Kuwait units account for the bulk of the company's revenues. But Etisalat could be interested down the line in taking on some of Zain's smaller operations, such as those in Iraq, Jordan, Lebanon or Morocco. The prices for those units would be more manageable and still give Etisalat additional bargaining power when it approaches hardware makers to provide components at a volume discount.
dgeorgecosh@thenational.ae