The plot thickens

Zain continues to command attention as conflicting deal rumours persist

Tags: Mergers and acquisitionsZain - Kuwait
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By  Roger Field Published  October 7, 2009

The ongoing saga involving Kharafi Group, a major shareholder in Kuwaiti telco Zain, and the Indian-Malaysian led consortium that is interested in buying a stake in the operator, continues to command attention.

While talks between the two groups have progressed for longer than many analysts expected, the proposed deal has a number of question marks hanging over it.

This is the result of so many nagging factors that threaten to derail it, including the need for various approvals from the Indian government if state-run operator Bharat Sanchar Nigam Ltd (BSNL) takes a majority stake in the consortium that is staging the bid.

Doubts are also fed by a general lack of concrete information, including the size of the Kharafi Group's stake in Zain, which is estimated to be about 20%, and conflicting information about the involvement of India's state-run operators BSNL and Mahanagar Telephone Nigam Ltd (MTNL) in the deal.

Indeed, some press reports assume that BSNL and MTNL are already part of the consortium, while other sources indicate that the two companies are waiting for valuations of Zain before they commit to any deal.

Despite these contradictions, it appears certain that BSNL wants the consortium to bid for a majority stake in Zain, rather than the 46% that had previously been agreed between the Kharafi Group and the consortium.

But while most reports have been seeking to verify the facts, there has been less speculation about the potential merits of such a deal, which could see BSNL at the head of a consortium that holds a majority stake in an operator with almost 70 million subscribers and a presence in 24 countries.

Judging by the recent past performance of BSNL, one has to question what the Indian operator can bring to the table other than a large pot of cash. Indeed, while Zain has expanded in some of the region's most competitive markets and succeeded in most, BSNL is widely viewed as an inefficient and bureaucratic behemoth in its home country.

Amit Gupta, principal analyst at advisory and consulting firm Ovum said that while the Indian telecom industry experiences high growth and private sector operators are posting impressive results, the performance of the two state owned operators continues to decline.

There has also been much speculation that the Indian government will sell part of its stake in these companies, and that it has explored the possibility of merging them in a bid to tackle their poor performance.

But should the consortium succeed in its bid to take a majority stake in Zain, it will help free the company from the influence of the Kuwait Investment Authority, which currently holds a majority 25% stake.  While this would no doubt please Zain's CEO Saad Al-Barrak, who makes no secret of his dislike of if KIA, attention may then turn to the influence the new shareholder has on the company.

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