Kharafi builds controlling stake in Zain

Stake quietly amassed as group prepares to sell holdings to an unidentified buyer.

The Kharafi Group in Kuwait and its associates have quietly amassed a controlling interest in the telecommunications giant Zain and are preparing to sell the stake to a strategic investor, it was disclosed yesterday. Media reports speculated that an Abu Dhabi fund was involved in the bid for Kuwait's largest company.

The reports of an imminent sale, in a deal valued at almost US$14 billion (Dh51.42bn), gives weight to months of rumours about the fate of the region's second largest mobile phone operator, which has helped double the stock market capitalisation of the company in four months. While Kharafi's main investment vehicle is listed by the Kuwaiti bourse as owning about 11 per cent of Zain, a Kharafi subsidiary said yesterday that it is in the process of selling 46 per cent of the telecoms.

"Officially they own about 11 per cent of Zain but everybody has thought for a while that it is more like 20 to 25 per cent," said one market watcher who asked not to be named. "Obviously they have spent recent months building up that stake considerably." With 10 per cent of Zain's shares held by the company's treasury, the owner of a 46 per cent stake would have a controlling interest in the Arab world's second largest telecoms.

While the Kuwait stock market requires investors to disclose a holding of more than 5 per cent in a company, it does not make companies reveal if associated parties also hold stakes, meaning a number of firms owned or linked to the Kharafi group may have acquired small stakes in Zain without needing to disclose it. For Kharafi and its associates to have acquired such a stake without public disclosure is a symptom of loose regulation in the Kuwaiti stock market, analysts said.

"Shareholders have a right to be made aware of material, price-sensitive information, and the stock exchange should ensure that there is full disclosure from Kharafi and its related entities," said Irfan Allam, a vice president of equity research at Al Mal Capital in Dubai. A Zain spokesman told analysts yesterday the company would not sell its treasury shares, adding the Kuwait Investment Authority, a sovereign wealth fund that owns almost 25 per cent of the company, is not selling. A buyer has yet to be identified. Some reports connected Reliance Telecom, one of India's largest telecoms, to the bid, but a Reliance spokesman denied the company was involved.

Essar, which runs one of India's largest mobile networks in partnership with Vodafone of the UK, said last month it would join Dhabi Group, an investment company controlled by the Abu Dhabi royal family. Dhabi Group and Essar officials were unavailable for comment. The investor is willing to pay 2 Kuwaiti dinars a share for the 46 per cent stake, a Kharafi subsidiary told the stock exchange. [e-mail]