New royalty rates announced for du, Etisalat

Move will raise the amount paid into federal coffers

Tags: Emirates Integrated Telecommunications Company Etisalat International - UAEUnited Arab Emirates
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New royalty rates announced for du, Etisalat A drop in Etisalat’s profits has led to a marked decrease in the royalties paid into the federal coffers.
By  Stephen McBride Published  December 11, 2012

The UAE government has set new royalty rates for both du and Etisalat, Reuters reported.

Etisalat will pay a rate of 15% on revenues and 35% on profits between 2012 and 2015. In 2016 the rates will be 15% and 30% respectively.

Du will be pay 5% on revenues, rising to 15% by 2016 and 17.5% on profits, with an incremental rise to 30% by 2015.

"There was speculation du's royalties would increase to match those of Etisalat, which is not the case and therefore a positive for du's stock," says Amer Khan, fund manager, Shuaa Asset Management.

"The regulator has put the uncertainty to rest by clarifying the gradual increase in fees ‘til 2016. Du has been very conservative in provisioning for royalties and now they wouldn't have to pay it all. The entire remaining amount will go straight to the bottom line, which is also a positive for dividends."

A drop in Etisalat's profits has led to a marked decrease in the royalties paid into the federal coffers, despite a previous royalty rate of 50%. It paid AED 5.8bn in royalties in 2011, down from AED 7.6bn in 2010 and AED 8.8bn in 2009.

The federal government made clear yesterday that the royalty rates would apply to revenues generated in the operators' home markets, alleviating the burden on Etisalat, which operates in 15 markets, some carrying national tax regulations. However, Etisalat will have to the difference between each foreign market's rate and the UAE royalty rate.  

The federal government directed du to pay a royalty of 15% on 2011 net profit, plus a further 5% of revenue on its 2011 profit.

Trading on both du and Etisalat stock was suspended pending the announcement.

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