Etisalat on brink of Zain deal

Etisalat is likely to assume control of Zain, but the deal is subject to approval by Zain’s shareholders. Salah Malkawi for The National

Etisalat is set to assume control of Zain as an investment company controlled by the Kharafi Group, the largest private shareholder of the Kuwaiti operator, collects shares to transfer once the deal is approved. Etisalat has placed an offer for 46 per cent of Zain worth 1.7 Kuwaiti dinars per share or US$10.5 billion (Dh38.56bn) but the deal is subject to approval by Zain's shareholders. Hamad al Humaidi, an investments manager with National Investments Company, which is controlled by Kuwait's Kharafi Group, denied reports the firm had the 46 per cent needed to transfer to Etisalat and could not provide a time when it expected to do so.

"We don't have the 46 per cent yet," said Mr al Humaidi. "We started gathering people who have more than 300,000 shares and … we're in the phase of gathering all the shares right now to put into one fund that will be transferred to Etisalat." The Kharafi Group is the second-largest shareholder in Zain, with about 13 per cent of the operator, according to Bloomberg data. Kuwait Investment Authority, the country's sovereign wealth fund, is Zain's largest shareholder with 24.6 per cent. Representatives from the Kharafi Group could not be reached. Officials from Etisalat and Zain declined to comment on the state of negotiations between the two operators.

The Kharafi Group has spent the past week soliciting shareholders through newspaper adverts in Kuwait to agree to sell their shares in a bid to reach the 46 per cent threshold. If the deal is approved, the acquisition of Zain will make Etisalat one of the largest telecommunications companies in the world with 133 million subscribers across 25 countries in the Middle East, Africa and Asia. Analysts widely expect the deal to be approved soon but some questions about Etisalat's offer remain unanswered.

"We don't know what the terms and conditions are. With any deal, there's conditions there need to be fulfilled," said Irfan Ellam, a telecoms analyst with Al Mal Capital. Mr Ellam said there was also the matter of what would happen to Zain's Saudi Arabia operations. Etisalat already operates Mobily, the second-largest mobile phone company in the kingdom and regulators would be highly unlikely to approve a merger of Zain's business.

Analysts have pointed to Batelco Group and Qatar Telecom (Qtel) as the two main bidders for Zain's Saudi Arabia operations. Zain Saudi Arabia is worth $756 million at its current share price. "There could potentially be a bidding war. It's got its own issues with its balance sheet and debt structure," Mr Ellam said. "But they could be buying it at the right time. The network is built out and they have just become cash-flow positive."

Peter Kaliaropoulos, the group chief executive of Batelco, has said the operator would be interested in obtaining Zain's Saudi unit but only at the right price. Batelco already operates in Saudi Arabia under Etihad Atheeb, which began offering broadband internet services last year under the Go brand. Marc Aafjes, the director of corporate strategy and intelligence for Qtel, said on Tuesday the purchase of Zain Saudi Arabia was "something to be considered". A Qtel spokesman said the company did not comment on rumours.