France Telecom is majority shareholder in JT after 15% sale

In the run up to Gitex the Jordanian government announced that it will sell of part of its shares in Jordan Telecom (JT) at a range of JD 2.30 to JD 2.70 (US $3.2 to $3.8) in an IPO as part of the government’s privatisation initiative, which aims to revitalise the country’s economy.

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By  Massoud Derhally Published  October 13, 2002

In the run up to Gitex the Jordanian government announced that it will sell of part of its shares in Jordan Telecom (JT) at a range of JD 2.30 to JD 2.70 (US $3.2 to $3.8) in an IPO as part of the government’s privatisation initiative, which aims to revitalise the country’s economy.

Jordan’s Minister of Finance, Michel Marto told reporters at a press conference the government will sell 37.5 million common shares or 15% of the country’s national operator beginning October 9 to 23. “Jordanians have been demanding for a long time, when we sold to a strategic partner two years ago, France Telecom, they asked why don’t you do this to Jordanians why do you sell only abroad,” Michel Marto, Jordan’s Minister of Finance told “We promised them that as soon as the company was better organised and managed, we would come to the market,” Marto added.

Shares of Jordan Telecom will be floated on the Amman Stock Exchange to both public and private investors, as well as international and institutional investors officials with the company said.

A statement from the Jordan Telecom said the final offer price “will be determined through a book-built tender process with institutional investors.” The Jordanian government stake in JT will be diluted after selling a portion of its holdings, leaving it with 37%. French Telecom will then be the largest shareholder in Jordan Telecom, as it owns 88% of JITCO a holding company that the Arab Bank also owns 12% of. The Social Security Coporation owns 8% of Jordan Telecom.

“The flotation of JT will give much further depth to the stock exchange and it will give the it [the exchange] a new instrument, a very solid one and powerful one,” Michel Marto told “You have 250 million shares in the company valuated at US $1 billion, which will give further capitalisation and liquidity to the market. The market is anxious to have an addition to it, a first class company with tremendous potential for growth and a highly profitable well-managed company,” added Marto.

The privatisation process of the telecom operator began in 1997. In 2000, the government sold a 40% of the company to both France Telecom and the Arab Bank for US $508 million. While US investment bank JP Morgan valued Jordan Telecom at US $959 million, less than Merrill Lynch’s US $1.2 billion, the current valuation of Jordan Telecom shares to be floated, is expected to raise between US $120 to $150 million. A successful sale may bode well for the sell off of other state assets, including pipeline and mining firms.

“The appetite and demand to buy shares of Jordan Telecom [by individuals] is high at the moment. Interest rates at the moment on the Jordanian Dinar are quite low around 3%,” Rsalan Deiranieh, chief financial officer, Jordan Telecom told “If the shares were sold at the high end of JD 2.7 the return will not be less than 5.5%. Such a return compared to other investments and deposits locally and internationally is competitive,” added Deiranieh.

The financial market in Jordan is monitoring the developments concerning JT, says Deiranieh. “Market activity has slowed down, as there are investors who wish to be in positive cash positions when the JT floatation takes place,” Deiranieh said. Deiranieh dismissed skepticism about the timing of the flotation amidst political uncertainty in the region. “We rely on the financial strength of our company. We do not have problems like other telecommunications companies in Europe which are burdened with large amounts of debt.”

Marto dismissed criticism about the timing of the JT sales and said the government was determined to proceed. “This has been planned some time ago. We have a programme of privatisation and we will keep going ahead — immaterial of what happens,” the finance minister told “The region has always had problems and there is always instability. Most people have learned to live with this. We are not worried and we feel it will be a very successful phase. Next year we will be doing something in the power sector. Jordan is doing its reforms and will keep doing the reforms and moving ahead,” added Marto.

“There is plenty of liquidity in Jordan these days. I think the IPO will be over subscribed especially that the sale price is quite fair,” Jawad Abbassi president of the Jordan based Arab Advisors Group, a consulting company focused on the communications, media and technology in the Arab World told “The market will have another blue chip with broad ownership, like the refinery, Potash, cement and the Arab Bank. Jordan’s policy is already set on privatisation. A success in JTC’s IPO will encourage the government to pursue other plans. Of course what determines success is usually the state of the company itself, so JTC will be successful because it is a successful company. A losing company will be harder to sell,” Abbassi added.

Jordan Telecom, which generates approximately JD 300 million per year, paid out a dividend of 21 US cents per share for the year of 2001. “This is the first experiment in which we are selling through the financial market to allow our citizens an opportunity to invest in a major firm,” said Marto. “At the maximum offer price, the 2001 dividend pay out places the shares on a historic dividend yield of 5.5%, which compares very favourably to the rates of interest obtainable for bank deposits,” added Marto.

“The firm is financially strong and has no debt ... We are trying to balance building a broad constituency of investors in Jordan with regional investors as well,” said Andrew MacCormack, managing director of Equity Derivatives at JP Morgan. Once Jordan Telecom is listed on the Amman Stock Exchange on November 4 it will effectively become the second largest company by market capitalisation after the Arab Bank. The flotation of the government’s assets in JT to ordinary Jordanian shareholders will be a first of its kind. In the past the government has sold parts of its holdings to investors privately.

“The Government seems to have struck a good balance between offering shares to the Jordanian public and selling shares to a strategic investor, such as France Telecom, which brings with it benefits such as management and technological expertise,” Nashat Masri, a former vice president of JP Morgan and currently partner in Foursan Group, a Jordanian venture capital firm told “By striking this balance, the Government continues with its important privatisation program, but also allows Jordanians to share in the upside potential of privatised entities such as JTC,” added Masri.

According to Masri, Jordan Telecom can serve as a case study for future privatisation options, in particular for companies where a strategic partner is not looking to do an outright acquisition of the entire company or if the company does not need a strategic partner. “If the JTC IPO is a success, and public demand for the shares is high, there will be popular pressure on the Government to repeat this with other companies,” Masri said

Analysts and industry insiders believe proceeds from the 15% flotation will help alleviate part of the government’s debt and finance development projects. The policy of the government is to engage the private sector in the Kingdom and work within the framework and recommendations of the IMF and the World Bank. The Rothschild Group is currently evaluating the power sector at the moment for privatisation and the government is currently looking into selling parts of the phosphates and potash companies.

JT currently has around fixed 700,000 lines, 300,000 mobile service subscribers and an internet service provider. The company has restructured the pricing matrix of its services, as its monopoly will end in 2005.

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