Foreign investors in Etisalat stocks will not receive voting rights, as the UAE Government seeks to retain firm control of the company when restrictions on non-Emirati ownership are lifted.
The Abu Dhabi-based telecoms operator announced the restriction on foreign shareholders yesterday, as part of a wide-ranging overhaul of its corporate governance structure, two months after announcing it would allow foreign ownership of 20 per cent of its shares.
"Restrictions in respect of voting rights shall be applied to the shares owned by non-nationals," the company said in a statement on the Abu Dhabi Securities Exchange. "However, holders of such shares may attend general assembly meetings."
The operator gave no reason for the move. Senior executives were not available for comment yesterday.
Etisalat also announced yesterday that it will change to a public joint stock company, with its name changing to Emirates Telecommunications Group Company, or Etisalat Group, from Emirates Telecommunications Corporation, following a federal decree.
The UAE Government’s 60 per cent shareholding in the operator will be designated as a “special share”, which will give it rights to key decisions such as approving any merger with another company, allowing the participation of a strategic investor, and approving ownership of more than 5 per cent of the company’s stock by another entity or person.
Etisalat has a year to implement the changes from the date of the decree, believed to have been approved this month.
Analysts said the voting restriction would likely prove a disappointment but not a deal breaker to foreign investors.
“I think that if foreigners were allowed equal voting rights there would be more demand for the stock,” said Sanyalak Manibhandu, research manager at NBAD Securities in Abu Dhabi. “If you compare the reaction to today’s announcement to when the lifting of restrictions was announced in June, it implies the market isn’t overly impressed.”
Etisalat shares ended the day unchanged at Dh13.45 a piece. The shares rose by 15 per cent on June 23, the day after the news of the lifting of the ownership cap.
“Etisalat is one of the most important blue-chip stocks in not only Abu Dhabi but the entire UAE, so it is not surprising the government will not like to give up control of the company to outsiders,” said Nishit Lakhotia, head of research at Sico Research in Bahrain.
The operator is the most valuable listed company in the UAE by some distance, with a market capitalisation of Dh117.8bn.
“Ideally, foreign investors would have preferred equal voting rights with other shareholders. It is a bit of a negative, but overall the move to allow them to own the shares is positive,” said Mr Lakhotia. “Investors will look at the company’s growth profile and dividends, and come in if the valuations and potential return from owning the stock makes sense.”
The litmus test for foreign appetite for Etisalat stock will be whether the company is included in MSCI's widely tracked Emerging Markets Index, said Mr Manibhandu. "If MSCI include Etisalat in their UAE index, then foreigners will follow in to the stock."
Etisalat’s inclusion in the MSCI Emerging Markets Index would result in it representing 0.14 per cent of the index, according to EFG-Hermes.
A spokesman for MSCI in London declined to comment on the voting rights decision.
Last month, Etisalat’s second quarter net profit after royalty fell to Dh1.5bn, as forex losses and troubles from subsidiaries hit earnings. That was down 40 per cent from Dh2.5bn a year earlier.
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