Kuwait's Zain buys majority stake in Paltel

UPDATE 3: Share swap deal sees 1.5m subscribers added to customer base.

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By  Rania El Gamal Published  May 18, 2009

Mobile Telecommunications Co (Zain), Kuwait's largest mobile operator, gained majority control of Palestine Telecommunication Co (Paltel) on Monday, as part of its expansion into "strategic" markets.

Zain bought 56 percent of Paltel, which has 1.5 million mobile telephone subscriptions and operates in the West Bank and Gaza Strip, in a share swap, board members said.

"The Arab world, the Middle East and Africa is a direct strategic market and we have to be in every corner of our strategic markets," Zain Chief Executive Saad Barrak said.

The Palestinian market has a low 35 percent penetration rate and offers more potential for growth.

A second Palestinian mobile network, Wataniya, is expected to start operations this year. Wataniya is owned by Qatar Telecommunications Co and the Palestinian Authority's Palestinian Investment Fund.

An industry source said the deal - which had been discussed since January - was finally agreed after Zain satisfied the Paltel board that the new entity would not be liable for debt or financial obligations elsewhere in the conglomerate.

Officials said the deal, which entails no cash transaction between Zain and Paltel, will see the setting-up of a new entity giving Paltel shareholders ownership of Zain's wholly owned Jordanian subsidiary in return for Zain securing majority control in a combined entity.

The merger of the Jordanian operations of Zain and Paltel into one business group was expected to generate over $1 billion in annual revenues and an estimated $300 million in net income alone this year, Zain executives said.

Zain's wholly owned Jordanian subsidiary is the largest mobile operator in the kingdom with around 2.3 million subscribers.

Sabih al-Masri, the chairman of Paltel, said the deal would encourage other Arab investors to enter the potentially lucrative Palestinian market in spite of the political uncertainty.

"Many people are sceptical about investing in the Palestinian territories, and when a large corporation like Zain ventures into the territories, it will give a big boost to the investment climate in Palestine," Masri told Reuters.

Separately, a senior Iranian telecoms official said on Monday a group led by Zain has until Wednesday to provide financial guarantees to secure Iran's third mobile licence, Iran's official news agency IRNA reported.

Last week, Iran invited Zain, runner-up in a tender, for talks over the licence after stripping it from Emirates Telecommunication Corp (Etisalat), which had bid highest.

"If the Zain consortium is unable to provide the required guarantees before the set deadline, the third-placed bidder would start talks with the regulator," Deputy Telecommunications Minister Kamal Mohamedpour said according to IRNA.

Zain spokesman Ibrahim Adel declined to comment on the report.

IRNA said a consortium led by Oman Telecommunications Co (Omantel) had also been among bidders for the licence.

Iran has a mobile phone penetration of less than 60 percent, in a market where about half of the 70 million population is under 25 years of age.

Zain, whose biggest shareholder is Kuwait's sovereign wealth fund, is spending billions to expand and operates in 22 countries in the Middle East and Africa. (Reuters)

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