Zain Saudi Arabia acquisition close to collapse

27 September 2011

Telecom firm’s debts mean fate of $950m takeover hangs in the balance

The $950m acquisition of Zain Saudi Arabia (Zain KSA), part of Kuwait’s Zain Group, by the local Kingdom Holding and bahrain’s Batelco is close to collapsing because of the telecom firms existing debts.

Sources close to the deal say that the two partners are struggling to find a way to settle issues relating specifically to Zain KSA’s $2.6bn outstanding debt, which is predominately held by Saudi banks.

“Things are not really looking good [for the acquisition] because of Zain’s debts, but negotiations have not fallen apart yet,” says a source familiar with the talks.

In an emailed response, Batelco’s current chief executive Peter Kaliaropoulous said: “It is extremely speculative to conclude at this stage that there will not be an agreement between the concerned parties. Negotiations are continuing and all parties remain pragmatic and optimistic on a successful outcome to address existing financing arrangements.”

However, bankers who hold the debt say it is difficult to see how the two bidders can meet the covenants on the existing debt (MEED 24:06:11). One banker in Zain KSA’s lending group says, “Banks have a lot of protection from Zain Group at the moment, and I don’t the current bidders can replicate that.”

Kingdom and Batelco are set to finish due diligence on the deal by the end of September. “There is a good chance the due diligence will be finished this month with no sale, it’s about 80 per cent the deal will not go ahead,” adds the source familar with the talks.

Earlier this week a Kuwaiti court ruled that Zain Group’s annual general meeting and board elections in April were void as it was legally flawed. This could create further complications for the acquisition. The operator is looking to appeal the ruling.

KHC did not respond to requests to comment on the progress of the deal, and Zain KSA said it “does not comment on rumours”.

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