Etisalat to earn most from UAE market even after Zain stake

Dubai: Etisalat will continue to generate more than 60 per cent of group earnings before tax from the UAE market until 2012-13 even after acquiring a stake in Kuwaiti telecoms firm Zain, analysts said Friday.

The Zain mobile portfolio will, however, enhance etisalat's coverage in the region with highly profitable markets, such as Sudan and Iraq, said Fitch Ratings analyst Bulent Akgul in a research note sent to Gulf News.

Emirates Telecommunications Corporation, commonly known by its brand-name etisalat, on Wednesday made a non-binding offer to acquire a 46 per cent stake in Zain for 1.7 Kuwaiti dinars (Dh12.8) per share, totalling $11.7 billion (Dh42.9billion).

‘Due diligence'

"The closing of this offer is dependent on the outcome of the due diligence process and the fulfilment of certain requirements and conditions necessary to finalise the deal," etisalat said in a statement to the Abu Dhabi Securities Exchange yesterday.

Zain, on the other hand, may need to sell its Saudi operations if the stake sale goes through, an investment banker told Gulf News on condition of anonymity. Etisalat has a 27.5 per cent stake in Mobily, which is the trade name of Etihad Etisalat. The third operator is Saudi Telecom.

"Both Zain and etisalat operate in Saudi Arabia. They will either have to close one of the operations or merge. It is unlikely the Saudi regulator will allow a merger, as that would create a company that would have, or be close to, a monopoly," the person explained.

Investment bank EFG-Hermes has said the price of 1.7 dinars per share is "considered high but in line with recent deals in the region".

The price, it said, implies an EV/EBITDA 2010 multiple for Zain of 12x, "which we could consider high, but in line with recent deals in the region, such as France Telecom, Meditel and Bharti Airtel-Zain," EFG said.

EV/EBIDTA is the multiple obtained by comparing the enterprise value, or the valuation of the company based on the offer price, with the earnings before interest, tax, depreciation and amortisation.

The Kharafi Group, a major shareholder in Zain, said it will accept an offer for its stake in Zain, Reuters reported on Thursday. Nasser Al Kharafi told a Kuwaiti newspaper the offer was "suitable and good for both parties".

No significant impact on rating profile

The deal, if completed, should not have a significant impact on the rating profile of etisalat, Fitch Ratings said in a statement.

The telco currently has a long-term foreign currency Issuer Default Rating (IDR) of ‘A+' with a stable outlook.

"Fitch recognises that ... many aspects of the transaction, including its funding, remain undetermined.

"Fitch expects that the company's management will still maintain a conservative financial policy even after such a sizeable transaction," it said.

"Consequently, there is room in the rating for a sizeable transaction such as this," it added.