Zain takeover likely to close by January 2010

03 November 2010

Etisalat played along Iraqi operators before choosing Zain

Etisalat’s takeover of Kuwait-based Zain may be finalised by January next year. Law firm Clyde and Co is working on the contracts and a consortium of banks which includes Abu Dhabi National Bank, BNP Paribas and Kuwait National Bank are advising on the sale. The Abu-Dhabi telecoms provider is due to carrying out the due diligence next week.

Once the takeover is finalised Etisalat will be forced to sell the Saudi Arabian unit of Zain as it already owns a share in Mobily, another operator in the kingdom. Zain Saudi chairman Prince Hussam al-Saud announced the imminent sale of the unit at the World Economic Forum in Marrakesh, Morocco last week.

Qtel has expressed an interest in buying Saudi Zain.

Etisalat has offered KD 1.7 per share for a 46 per cent stake, valuing the deal at around $12bn. The full amount is due to be paid in cash. The Abu Dhabi government owns 60 per cent of Etisalat, although it will not be providing any financial aid for the takeover. Zain’s second largest shareholder, the Kharafi Group is leading the sale. If the deal is finalised, it will be the largest in the Gulf since Sabic, the Saudi Arabian petrochemical company acquired GE Plastics for $11.6bn in 2007.

Zain has recently been struggling with debts, despite a growing mobile subscriber base. It sold 15 of its African units to Indian telecoms operator Bharti Airtel earlier this year for $10.7bn and sought a $1.3bn credit loan in September to refinance its debts. Zain has also cut back on capital expenditure to prepare the company for takeover.

Etisalat, which in recent years has led an aggressive expansion policy, was in talks with Iraqi-based mobile operator Korek Telecoms a deal that has now fallen through due to the Zain takeover.

A senior official at Korek says they believe that Etisalat was talking to them and Zain at the same time. “It is clear they were playing both of us along,” he says. Korek had been in talks with Etisalat for almost three years, unable to negotiate on operations, management and price. The deal between the two was intended to expand Korek’s network to the rest of Iraq. The company has instead set aside a $900m investment in its infrastructure for the next two-years, working with Ericsson and Nokia Siemens Networks. It will be announcing its commercial services in Baghdad on 11 November.

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