Qtel interest in Zain Saudi Arabia could prove a boon for Etisalat

Details: James Barton; Category: Trends & Forecasts; 08 October 2010; 9865 views

Etisalat’s bid for a 46% stake in Zain could be a step closer to becoming a reality – and help has come from an unlikely source. Qatar Telecom (Qtel), a regional rival of Etisalat, has expressed an interest in purchasing Zain Saudi Arabia – a move which could facilitate Etisalat’s planned acquisition...

UAE-based Etisalat has stated that it will bid KWD1.7 per share in an attempt to acquire a 46% stake in Kuwaiti Zain, which has valued these assets at US$12 billion. However, the Bahrain-based bank Sico has highlighted an area of potential difficulty regarding legislation in Saudi Arabia.

Saudi Arabia’s Telecom Act features guidelines that prevent companies from gaining an overwhelming market share through mergers. As Etisalat already operates in Saudi Arabia under the Mobily brand, acquiring Zain Saudi Arabia would give it a combined mobile market share of around 55%, stifling competition.

Sico has suggested that Qtel acquiring Zain Saudi Arabia would resolve the issue, stating: “Qatar Telecom could be a possible contender for taking over Zain's Saudi operation considering its strategic ambitions to expand its operations in the region.”

Zain’s 25% stake in its Saudi Arabia operations has been valued by Sico at roughly US$925 million, taking into account the controlling stake premium of 25%. Zain Saudi Arabia has a customer base of around 7 million, amassed in only two years, but it faces tough competition from larger rivals in the form of Mobily and Saudi Telecom subsidiary STC.

Having paid US$6 billion for its Saudi licence, the network is now attempting to raise US$1.2 billion to fund the expansion of its network.