Holding companies Kuwait Projects Company (Kipco) and Mawarid Group have appointed Rothschild as financial adviser to study the possibility for an initial public offering (IPO) of pay-TV network OSN.

Kipco and Mawarid Group respectively own 60.5 per cent and 39.5 per cent of the Dubai-based company, which was created through a merger of the Orbit Group and Showtime Arabia in 2009.

Rothschild also acted as the adviser on the £221m ($342m) London Stock Exchange listing of Abu Dhabi’s Al-Noor Hospitals Group in June.

“I would assume they are after a valuation of $2bn to $2.5bn, based on what shareholders believe the company is worth and what bankers previously have said,” says Ali Ajouz, a broadcast media consultant and former employee of OSN.

But Adam Thomas, media research manager at UK-based Informa Telecoms & Media, says estimates in the range of $2bn seem a little high.

“The Mena region is a notoriously difficult one for pay TV to make a profit, so I think the market limitations mean it may have to settle for a valuation some way below that.”

A spokesperson for OSN declined to comment on the valuation the company may be after. “Rothschild is studying various market opportunities for the business. No decisions regarding an IPO have been taken; it’s at a very preliminary stage right now.”

OSN had the intention to launch an IPO since the merged company was created, but refrained from doing so because of the financial crisis, according to Ajouz. Its current plans mark the second attempt to go public, after Showtime explored the possibilty of a listing on the London Stock Exchange around six to seven years ago.

The prospects for an IPO have improved following the merger. OSN has posted revenue increases in each of the three years since it was created, adds Thomas.

“For OSN, the most significant hole in its programming is the most sought after sports content, particularly soccer. Much of this has previously been acquired by the likes of Al Jazeera and Abu Dhabi Media Company, who have had the financial muscle to outbid OSN. But there are signs that these state-backed rivals are not quite as strong as they once were, so a cash injection from an IPO could really put OSN in a strong position to acquire even more attractive content rights.”

The pay TV sector was worth $1.7bn across the Mena region in 2005, rising to $2.6bn for 2012, according to Informa. Revenues are forecast to increase to $3.7bn in 2017.

However, growth is restricterd by the ongoing popularity of free-to-air satellite channels and piracy.

OSN has announced it is targeting 1 million subscribers. It is currently estimated to have about half a million.

But it will face competition from channels that offer programmes for free, according to Simon Murray, principal analyst at UK-based Digital TV Research.

“They have also lost sports rights to Al Jazeera and Abu Dhabi Sports, which air major events such as the Premier League and Champions League. The sports side is essential for premium-pay TV operators to prosper. Without that, it is less attractive to subscribers.”

However, Ajouz says OSN has not been seriously bidding for sports rights as the costs tend to be higher than profits, and OSN’s main appeal is family entertainment such as movies. It is possible that OSN may pursue winning some of these rights back with funds raised through an IPO, he says.