Zain's gain

The sale of Zain's African assets, and the departure of Saad Al Barrak as CEO, may prove beneficial to an operator that expanded too quickly.

Tags: KuwaitMergers and acquisitionsZain - Kuwait
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By  Roger Field Published  March 2, 2010

When Zain announced that industry heavyweight Saad Al Barrak had resigned as CEO, followed by news that the company had reached a deal to sell most of its African assets to Bhart Airtel, it was easy view the developments as a major setback for the telco.

Yet both developments may prove to be a positive turning point for a company that expanded too far, too fast, and in the process alienated its major shareholders by placing too much emphasis on markets with limited potential.

There is no doubt that Saad Al Barrak was an influential leader in the region's telecoms sector, having led Zain's expansion since his appointment in 2002 to become a pan-regional player with operations in 23 countries in Middle East and Africa.

But Al Barrak's single track vision may also have been his undoing. As CEO, part of his job was to expand the company while boosting profitability. Yet many of his adventures weighed heavily on the company's balance sheets and proved too reckless for shareholders, who preferred to see a healthy profit and dividends rather than frenetic growth into crowded markets renowned for low ARPU and fierce competition.

The decision to pay US$6.1 billion for the third mobile licence in Saudi Arabia raised eyebrows, with many analysts questioning whether such a cost would ever allow the operation to be genuinely profitable.

The timing of the announcement to sell the African assets confirmed what many had been thinking. Al Barrak was evidently aghast at the prospect of dismantling the empire he had created, while shareholders, namely the Kaharafi Group, were tired of seeing the company place so much emphasis on markets they viewed as a drain on resources.

And let's not forget, Zain - which looks set to pocket a tidy $5 billion profit from the Bharti deal - can hardly be viewed as a loser in the proposed sale.  It will leave behind some notoriously low ARPU markets including the Democratic Republic of Congo, Chad, Ghana and Malawi, and in turn be able to place greater focus on its more lucrative Middle East assets of Kuwait, Saudi Arabia, Iraq, Jordan, Bahrain and Lebanon. And in today's cash strapped markets, $5 billion is no small sum to play with. Zain is also holding on to two of its most important African operations, Morocco and Sudan, two countries with close ties to the Middle East.

As Zain's new CEO Nabeel Bin Salama told reporters recently, the company intends generate further growth from its operations in Saudi Arabia, Iraq and Sudan and remains interested in opportunities to expand if they offer "good returns and conform with the group's strategy for the new phase."

While Zain is unlikely to be more specific any time soon, it would not be difficult to imagine the company bidding for attractive assets in the Levant and Arabic-speaking countries in North Africa, and rumours of moving into Syria have persisted for some time.

Meanwhile, Bharti Airtel, which is renowned for its ability to extract profits from the toughest of markets, stands a strong chance of succeeding with Zain's African units and could offer a counter balance to MTN's dominance in the continent.
On closer inspection, recent comments from Nasser Al Kharafi of the Kharafi Group, that the deal represents "a fair price and opportunity for both of us" appear to be far from disingenuous.

3130 days ago
Chaila Penza

Does this mean there will be another major rebrand of Zain's operations in markets that Bhart Airtel will take over?

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