Al Mal cuts Zain rating after Africa sale rally

Current share price overestimated how much the firm could get its African assets' sale - Al Mal.

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By  Eman Goma Published  August 20, 2009

Al Mal Capital cut its rating on Zain shares to "underperform" on Thursday, pressuring the stock lower, saying the current price overestimated how much the firm could receive in the sale of its African assets.

Al Mal lowered its price target on the stock to 1.14 dinars ($3.97). The shares, up 43 percent over six weeks amid torrid sale talk, had slipped 5.5 percent to 1.38 dinars on Thursday as investors cashed in gains.

The stock hit a 10-month closing high on Monday of 1.48 dinars after Zain's chief executive was quoted as saying the firm was in talks with three telecoms operators over the sale of its African assets.

"Zain's share price is currently supported by the potential partial or full divestment of it's African operations (excluding Morocco and Sudan), the potential capital gains on such a sale and their subsequent redeployment that could arise from any such sale," Al Mal analyst Irfan Ellam said in a research note.

"If Zain were to sell its African operations piecemeal we believe the company would not receive the multiples reflected by its current share price."

Al Mal estimated the value of Zain's African assets at $6.9 billion, excluding Morocco and Sudan, noting media reports have said Zain wants as much as $12 billion for the operations.

Dubai-based Shuaa Capital said in a research note last month that the deal is based on a total enterprise value of $11bn, accounting for $2bn in debt carried by the African unit.

Zain said last month it was still reviewing a possible sale of its African operations - excluding Morocco and Sudan - after French media and telecoms conglomerate Vivendi broke off talks on buying the operations.

On Tuesday, banking sources said that Reliance Communications was in talks to acquire the operations.

Africa represents about 62 percent of Zain's 64.7 million customers. It operates in 16 African countries. ($1=.2872 Kuwaiti Dinar) (Reuters)

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