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Goldman Sachs downgrades Zain and Qtel

Market overvalued Zain's African asset sale, while Qtel faces stalling growth in home market, according to Goldman Sachs.

Goldman Sachs downgraded Zain, explaining that the market reacted "too positively" to the recent deal with Bharti Airtel.
Goldman Sachs downgraded Zain, explaining that the market reacted "too positively" to the recent deal with Bharti Airtel.

Two of the Gulf's leading telecom operators have been downgraded by Goldman Sachs. The US investment bank downgraded Kuwait's Zain to 'sell' from 'neutral', while Qatari incumbent Qtel saw its rating changed to ‘neutral' from ‘buy'.

An analysts with Goldman Sachs said in a note that the market had reacted "too positively" to Zain's deal to sell its African assets to Bharti Airtel, and added that the Kuwaiti company had one of the lowest real growth outlooks among its peers in central Eastern Europe, Middle East and Africa due to a deteriorating home market, according to a report from Reuters.

Meanwhile, Qtel, which faced competition in its home market for the first time last year, had its rating cut and its 12-month price estimate was reduced by 21% to 184 riyals with Goldman Sachs citing slower growth in its home market, Bloomberg reported.

"We reduce our estimates to reflect EBITDA margin erosion and slower growth of the subscriber base in Qatar," Moscow-based analyst Alexander Balakhnin said in a report quoted by Bloomberg. "Qtel will underperform its peers before the competitive environment stabilizes in Qatar, which is unlikely in the short term."

The developments followed news last month that investment advisory service Moody's had placed Qtel's A1 Rating under review.