Coming of Age

Having spent a number of years developing its domestic market of Kuwait before embarking on a pragmatic international expansion programme, Wataniya Telecom's progress has been a low-key event. However with mounting take-over speculation, a billion-dollar credit facility and an iDEN expansion partnership deal with the US’ Sprint/Nextel, Wataniya is being noticed and expectations are being raised.

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By  Christopher Reynolds Published  February 28, 2007

|~|webbodywati.jpg|~|Wataniya Telecom chairman Faisal Al-Ayyar believes a sense of euphoria exists with respect to the cellular sector in the region, and he hopes it will come to an end soon. |~|"Quite frankly, we take the speculation that Wataniya Telecom is a takeover target as a compliment,” asserts Wataniya Telecom chairman Faisal Al-Ayyar, speaking to CommsMEA from the exclusive Wataniya Café on the boarders of the Fira exhibition venue at this year’s 3GSM World Congress in Barcelona. “The speculation shows that we are a successful venture, and important venture, and there are parties interested in sharing in the success,” he adds. Al-Ayyar confirms that on a daily basis Wataniya is approached by potential dealmakers pitching the operation. At the end of February it came to light that 24.9% Wataniya Telecom shareholder KIPCO (Kuwait Projects Company Holding) had formed a consortium of shareholders holding a total of 51% of Wataniya's capital in order to assess the approaches with the view to selling their share in the company. As of the beginning of 2007, 52.1% of Wataniya Telecom’s shares were publicly held, with KIPCO and the Kuwait Investment Authority owning the outstanding share capital. Wataniya’s large free float, and strong financial position do indeed make the operator an attractive acquisition target, not to mention the geographic strength of its portfolio, which includes a presence in markets such as Saudi Arabia, Tunisia, Algeria and Iraq. The operator posted a consolidated net profit of KD 73.2 million (US$251.8 million) for 2006, an increase of 39% compared to KD 52.8 million in the same period for 2005. Despite the success that Wataniya and some of its other regional counterparts are enjoying, Al-Ayyar remains cautious of the valuation of companies and investments in the region. Wataniya International, the subsidiary through which Wataniya Telecom holds its telecoms investments outside of Kuwait, has been a prudent participant of M&A frenzy that has gripped the Middle East telecoms sector in the last two years or more. “There is big euphoria happening in our space at this time,” Al-Ayyar comments. “I hope that it won’t continue for too much longer.” Though Al-Ayyar is not a large supporter of the premiums being paid for telecoms assets in the region at this point in time, he has still chosen to shore up Wataniya Telecom’s financials through a US$1 billion credit facility with leading European, Asian, Middle Eastern and Kuwait banks. The facility was announced last month with BNP Paribas acting as the sole mandated lead arranger, underwriter and bookrunner of the facility. “We are pleased that many financial institutions have shown trust in Wataniya,” comments Al-Ayyar. The US$1 billion facility is a three-year revolving credit facility with an extension option of two years, and Wataniya Telecom would give no specific details of where the money would be used other than to say it would be used to finance the growth and expansion of its business. ||**|||~|webbodywati2.jpg|~|Julian van Kan, head of Loan Syndications and Trading, BNP Paribas and Faisal Al-Ayyar after the signing of the US$1 billion credit facility.|~|In January Wataniya International announced the increase of its stake in Saudi Arabia’s Bravo iDEN network to 47%. Wataniya previously held a 38% stake in Saudi Arabia’s Public Telecommunications Company (PTC), the company that operates the Bravo network. Other shareholders in PTC are Nasco, Ali A.Tamimi Co. and Sultan Najr Al Otaibi, though Wataniya manages Bravo’s network. PTC was awarded a 15-year ‘build, operate, transfer’ licence in cooperation with Saudi Telecom and launched commercial services in July 2005 under the brand name Bravo.The investment in iDEN technology by Wataniya International in Saudi Arabia compliments a deal it penned later with U.S. CDMA/iDEN operator Sprint/Nextel in February, which will see a consortium of regional investors led by Wataniya International formalise an agreement with Sprint Nextel to form Sprint Nextel Middle East, which will deliver wireless communications services in the Middle East and North Africa. The formation of the venture is subject to the satisfaction of certain conditions, including regulatory approvals, and the transaction is expected to close later this year. “The joint venture with Sprint Nextel shows our expansionary ambitions,” commented Al-Ayyar. “And we do not look for expansionary opportunities for the sake of just doing them – everybody is looking for growth, but we are looking for smart growth.” Motorola, the proprietor of iDEN technology has been helping operators expand push-to-talk across North and Latin America, as well as parts of Central and Eastern Europe and the Middle East. IDEN operations already exist in Jordan as well as in Saudi Arabia and a number of other regional markets, and the creation of the joint venture with Sprint Nextel is likely to aid the spread of the technology across the Middle East and North Africa region. Domestically, Wataniya Telecom has been all about innovation and closing the gap between itself and market leader MTC. Last year the operator entered a deal worth US$125 million with Nokia for the implementation of advanced technologies to enhance the network. Included in the deal was Nokia’s High Speed Downlink Packet Access (HSDPA) solution, a software upgrade to the WCDMA network, permitting data speeds of up to 2Mbps in the first phase. The deal with Nokia was upgraded in October 2006, with the supplier awarded a contract to expand its HSDPA radio and core network, increasing its capacity and extending the network coverage to new service areas. “We believe in growing the subscriber base year on year. We want to be at the front edge of technology,” Al-Ayyar asserted. The two incumbent operators in Kuwait have grown the market to over 2.5 million subscribers representing a penetration rate in excess of 100%, so the government’s decision to go about licensing a third operator this year has been deemed as unnecessary. “We don’t know how a third operator can make business sense,” Al-Ayyar states. “Competition is part of our culture, and we are not afraid of it, but it is the business case for a third operator that I question,” he added. Market leader MTC is predictably in agreement with Al-Ayyar and it will be interesting to see the prospects of the third operator when further details are announced. At the beginning of this year the Kuwaiti cabinet decided to establish a third mobile operator in the country. According to an official statement issued by the cabinet, 60% of the anticipated enterprise would be publicly owned, 24% would be held by state-owned authorities and the remaining 16% would belong to a core local or international investor. Industry murmurings suggest a rift exists between Wataniya Telecom CEO, Harri Koponen and Wataniya International CEO Ahmed Haleem, as a consequence of their largely independent roles. Koponen has transformed the Kuwait operation, and it has been suggested that he is vying to play a wider role within Wataniya’s operations outside of Kuwait. Haleem, on the other hand has been a ‘safe pair of hands’, helping spearhead Wataniya’s ambitions everywhere outside of Kuwait. Both men report to Al-Ayyar who says his role as chairman involves strategising, reviewing and dialogue. It appears for the meantime, the chairman is satisfied with the status quo, and the two chief executives look likely to continue to further push the boundaries of their respective successes. ||**||

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