Back to business for Zain

India's Bharat Sanchar Nigam and Mahanagar Telephone Nigam are, according to newswire reports, pouring over Zain’s books at the moment

Tags: IndiaKuwaitMergers and acquisitionsZain - Kuwait
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By  George Bevir Published  September 13, 2009

With a group of Asian investors apparently set to buy a 46% stake in Zain it seems as though the months of intense speculation about the future of the telecom giant are about to come to an end and it will soon be back to business for the Kuwaiti operator.

India's Bharat Sanchar Nigam and Mahanagar Telephone Nigam are, according to newswire reports, pouring over Zain’s books at the moment. If the US$13.7 billion deal goes ahead it will draw to a close the uncertainty that has surrounded the group since it emerged that Zain’s African assets had been put up for sale – a plan that appears to have been binned pending any stake sale.

But an already opaque deal was plunged into doubt on Wednesday when a joint statement was issued by the two firms in an apparent attempt to distance themselves from the speculation. “MTNL and BSNL would like to clarify that no view has been taken regarding participation in the said consortium,” they said.

If such a statement is just a smokescreen and the deal gets the green light, then it represents a good bit of business for the shareholders. According to the Financial Times, at approximately 11 times forecast earnings before interest, tax, depreciation and amortisation (EBITDA), Zain is valued at almost twice the multiple of its low-growth European peers.

One aspect of the potential deal will certainly please Zain CEO Saad Al Barrak. Although many of the finer points are still unclear, it appears that the Kharafi Group is set to sell its 20% stake along with another 26% of shares that have been amassed from a number of undisclosed shareholders.

This means that the Kuwait Investment Authority, with its 25% stake, will no longer have a controlling stake in the operator, something that will no doubt please the outspoken Zain boss.

Al Barrak has been quite vocal about wanting to get rid of the KIA. Speaking at the Arab Advisor’s conference in Amman earlier this year, he said he was keen to see KIA “leave tomorrow”, adding that it was something that he was working on.

And if any share sale puts a stop to Zain’s empire being cut in two that will be a further boost for Al Barrak, as he looks to steer the operator toward Zain’s stated goal of becoming one the world’s top operators.

At the end of last week, Al Barrak told daily newspaper Al-Watan: "The agreement to sell 46% of Zain will not change anything from the commitments of the executive management in carrying out its future plans."

Those “future plans” will surely include a significant amount of time and energy to be spent on the group’s African assets. When they were put up for sale, it was assumed by many that low returns on high capital expenditure - particularly in comparison to operations in the Middle East – formed the justification behind the decision. The conundrum of translating high capex into profit in so many low ARPU markets will remain, and will be high up on Al Barrak’s agenda.

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