Better news for Orascom Telecom

11 October 2002

Cairo-based Orascom Telecom (OT)has reported its second successive quarterly net profit, and has secured a court ruling in its favour with respect to the company's dispute with its Syrian partner. Analysts say these developments are positive, but that OT still has a lot of work to do in addressing fundamental problems with its balance sheet structure.

OT announced a net profit of £E 16 million ($3.4 million) for the first half of 2002. The company also reported a small profit in the first quarter of the year, following heavy net losses in 2001. Total consolidated EBITDA rose by 99 per cent year-on-year to £E 1,025 million ($220 million).

The improved performance has been based on the strong growth in subscribers to its GSM services, particularly in Algeria, Jordan and Pakistan. Total subscribers reached 4.7 million at the end of June, an increase of 13.5 per cent on the first quarter, and a year-on-year rise of 50 per cent. Egypt continues to be the largest market in terms of total subscribers, with 2.1 million signed up to the MobiNil service, in which OT has a 31 per cent share. In terms of proportionate subscribers, Jordan Mobile Telephone Services Company (Fastlink)now occupies top spot, at 766,923. Fastlink and the Pakistani Mobilinkservice both increased their total subscriber numbers by over 100,000 during the second quarter.

'It is very positive for its financial position, as the increased EBITDA has compensated for rising costs,' says Yasmine Ibrahim of the EFG-Hermes Telecom Fund. 'But it still has some basic problems with its balance sheet because of the company's high leverage.'

OT's debt/equity ratio stood at 3.6 at the end of June. The company had been seeking to bring this down through an increase in its capital, but this plan has been shelved because of poor equity market conditions. It has managed to strengthen its balance sheet in recent weeks through a $90 million debt-to-equity swap, the sale of OT's stake in the Yemeni Sabafonservice for $18.5 million and a $25 million debt repayment to equipment suppliers (MEED 27:9:02). However, these sums represent only a fraction of the company's total debt of some £E 6,800 million ($1,460 million).

OT has registered some progress in its dispute with the local partner in the Syriatel GSM service, which started up in early 2001. On 3 October, OT said it had obtained a ruling from the high court in the British Virgin Islands (BVI) for a freeze injunction up to the value of $57 million on the worldwide assets of Drex Technologies, controlled by Syrian businessman Rami Makhlouf (Telecoms, MEED Special Report, 16:8:02, page 27).

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