Rude health

A review of the third quarter results of a number of the leading mobile operators in the Middle East and Africa show operators in strong and strengthening financial positions. Despite premium prices being paid for new positions and acquisitions, as well as the effects of increased competition, local players are reaping the benefits of becoming specialist service providers.

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By  Published  October 31, 2006

Kuwait's Wataniya Telecom has mandated BNP Paribas to arrange a US$1billion, three-year revolving credit facility, with an extension option of two years.

BNP Paribas will act as the sole underwriter, arranger and bookrunner in connection with the facility.

The facility will be syndicated to a select group of relationship banks.

Like MTC Group before it, Wataniya appears to be bolstering its investment firepower, while taking full advantage of capital markets’ current appetite for telecoms investments.

Having recently splashed out US$355 million for Palestine's second mobile licence, and likely facing a sizeable bill to extend its participation in the Iraq mobile licence when that award process eventually comes to pass, there are no shortages of ways for Wataniya to utilise the facility.

Wataniya Telecom's 3Q06 results offer an incling as to why banks and other investors are lining up to tie-up with Gulf and Middle East mobile service providers.

Wataniya reported consolidated net profit of KD50.1 million (US$172.3 million) for the first nine months of the year, an increase of 22% year on year.

Total active customers increased to 8.84 million at the end of September, up from 5.2 million a year earlier, and represented an increase of 11% quarter on quarter.

Revenues for the first nine months grew to KD307.9 million, an increase of 40% year on year, with EBITDA growing to KD133.7 million, up 67% for the same period last year.

“We have exceeded a combined subscriber base of 8.8 million by doubling our customers in Algeria and Iraq, more than quadrupling in the Maldives and growing seven-fold in Saudi Arabia compared to the same quarter in 2005,” said Faisal Al-Ayyar, chairman of Wataniya Telecom.

“Our solid reputation and experience in greenfield operations has also won us the bid to build and operate the second mobile telecoms licence in Palestine, a market that we believe has great business potential.”

In its home market of Kuwait, Wataniya's subscriber base increased to over 1 million active customers to end- September, with revenues for 3Q06 amounting to KD45.9 million compared to KD39.6 million in the same period of 2005.

EBITDA for 3Q06 was KD20.7 million, representing a 45% EBITDA margin.

Net profit amounted to KD16.8 million, a decrease of 8% year on year, as portfolio income was lower as compared to 2005.

In Tunisia revenues for the three months to end-September 2006 were KD19 million, an increase of 39% year on year.

EBITDA was KD8.1 million, up 50%, with net attributable profit to Wataniya Telecom from the Tunisiana operation amounting to KD2.5 million.

Revenues at Asia-Cell in Iraq for 3Q06 amounted to KD28.9 million, up 66% year on year.

EBITDA was KD17.8 million for the period, an increase of 99%.

The net attributable profit to Wataniya Telecom from Asia-Cell in the period was KD5 million.

In Algeria, revenues came in at KD21.2 million for 3Q06, an increase of 67% year on year.

EBITDA was KD5.5 million, up 100%, with net attributable loss to Wataniya Telecom from Nedjma amounting to KD1.3 million.

Wataniya also has operations in Saudi Arabia and the Maldives.

Rival player MTC Group reported even more glittering financials.

The operator recorded consolidated revenues of KD849.15 million for the nine months ended September 30, 2006, an increase of 115% over the same period in 2005.

During the nine months, the consolidated EBITDA increased by 78% over same period last year to reach KD416.57 million, generating a healthy margin of 49%.

MTC announced consolidated net income of KD223.18 million, an increase of 64% compared to the same period last year.

Subscriber numbers totalled 24.9 million customers in the Middle East and Africa at the end of September, reflecting a year on year increase of almost 100% due to organic growth and acquisitions.

The company's subsidiaries are consistently the leading operators in the overwhelming majority of the 20 countries where MTC operates.

It is the strength of such operational activities that in July afforded MTC the opportunity to sign a general syndication agreement for a US$4 billion credit facility.

The Kuwaiti operator said the money would be used to fund its future acquisitions and general corporate needs.

Underwriting the credit facility were BNP Paribas, Calyon, Credit Suisse and UBS, which all acted as joint mandated lead arrangers and bookrunners.

NBK Capital, the investment and merchant banking subsidiary of National Bank of Kuwait, acted a financial advisor on the transaction.

The credit facility is the largest syndicated facility for a private sector company in the Middle East, and could help MTC target upcoming opportunities such as the third licence in Saudi Arabia, or to re-bid for one of the long-term Iraqi licences, in the same vain as domestic and Iraq rival Wataniya.

Ahead of the introduction of competition, UAE state incumbent Etisalat remains one of the most profitable operators in the region.

Despite huge investments, including billion-dollar upfront costs in Saudi Arabia and more recently Egypt, the operator continues to grow from strength to strength.

Revenues for the consolidated nine months increased to AED11.815 billion (US$3.22 billion), a rise of 26% compared to same period last year.

Operating profits increased to AED4.150 billion, a rise of 36% year on year, and net profits for the nine months grew to AED4.386 billion, an increase of 36%.

Mobile subscribers numbered 5.26 million at the end of September, while internet subscribers, including broad band connections, reached 630,000, a record growth of 34% year on year.

Fixed lines subscribers numbered 1.28 million, up 4%.

While the prospect of the breaking of Etisalat's monopoly may be perceived as a threat to Etisalat’s ongoing viability, there is potential upside related to the development.

“One event that could add significant value to Etisalat is whether the royalty fee, which stands currently at 50% of the company's annual net profit, is reduced to take into account the new competition that Etisalat will face in its home market,” commented Marc Hammoud, senior financial analyst at Shuaa Capital in Dubai in an equity note on the telco earlier this year.

“In our opinion, there is a high likelihood that the UAE government will gradually reduce the fee to 30% by 2010, starting in 2007.

However, no official statement on this subject has been released,” he added.

MTN, Africa's most profitable mobile operator is still digesting the US$5.5 billion acquisition of Investcom Telecom earlier this year.

However, this did not stop the operator from recording a growth in revenue by 17.6% to R20.2 billion (US$2.68 billion) for the six months to end- June 2006, while EBITDA increased to R8.7 billion and adjusted profit after tax to R5 billion.

The operator recorded 25.4 million subscribers at the end of June, a 9.4% increase from end-December.

Climbing operational performances are likely to define the course of regional operators for the medium-term.

“We have exceeded a combined subscriber base of 8.8 million by doubling our customers in Algeria and growing seven-fold in Saudi Arabia compared to the same quarter in 2005”


“One event that could add significant value to Etisalat is whether the royalty fee, which stands currently at 50% of the company's annual net profit, is reduced to take into account the new competition that Etisalat will face in its home market”

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