Omantel share sale will net $1.7bn

Oman's government will raise at least Dh6.2bn from the sale of a 25% stake in Omantel, the national telecommunications company.

A fine catch: Analysts expect a 25 per cent stake in the state telecom operator, Omantel, to fetch a premium.

Oman's government will raise at least US$1.7 billion (Dh6.2bn) from the sale of a 25 per cent stake in Omantel, the national telecommunications company, to a foreign investor. Darwish Ismail al Bulushi, the secretary general of Oman's Ministry of Finance, revealed details of the long-expected sale yesterday, and said that an additional stake would be sold at a later date. His government's 70 per cent holding in Omantel would be reduced to 45 per cent after the transaction.

Etisalat and Saudi Telecom, the two largest telecommunications companies in the Arab world, have expressed their interest in acquiring a stake in the company. Thirty per cent of Omantel is traded on the Muscat Securities Market, where its share price has increased by 40 per cent this year. The company is valued at 1.8 billion Omani riyals (Dh17.1bn). Sagar Patel, an analyst at BankMuscat, expects the stake to be sold at a premium, based on Omantel's potential for domestic growth. "We are bullish on the prospects for their internet business," he said. "And the mobile revenues should grow at 12-15 per cent in the coming years."

Friendi, a new mobile virtual network operator (MVNO) is soon to launch in Oman. The Dubai-based company will offer a mobile service to the public, paying existing mobile operators to use their physical networks. Oman's Telecommunications Regulatory Authority (TRA) has issued licences to five MVNOs, including Friendi. Selling wholesale network bandwidth to these new operators could open new revenue streams for Omantel, but the company's failure to build significant international business ruled out a growth trajectory comparable to its GCC peers, said Mr Patel. "When other operators were busy entering new markets across the region, these guys were fairly docile," he said.

Earlier this year, Omantel paid $193 million to acquire Worldcall, a Pakistani telecoms company. Worldcall reported just $10m in earnings last year, but Mohammed al Wohaibi, Omantel's chief executive, said the purchase was "a long-term investment for the future". Mr Patel said Omantel's foothold in Pakistan could be one of the few factors that helped attract a larger premium in the stake sale, although Worldcall was still three to four years away from making significant contributions to the company's bottom line.

Late last year, the government reduced royalty fees payable by Omantel on mobile and fixed-line revenues by five per cent and three per cent, respectively. This year's 60 per cent growth in first quarter net profit, which reached $100m, was assisted by the decrease in royalty payments. Nawras, the new operator that broke Omantel's mobile monopoly, has taken a 40 per cent market share since its launch in 2005. The company, a joint venture between Qatar's Qtel and TDC of Denmark, is tripling its capital expenditure this year in preparation for an IPO of at least 40 per cent of its stock, which must be completed by 2010 under the terms of its licence.

Since the liberalisation of Oman's telecommunications system, and the entry of competition in the mobile market, the number of mobile subscribers in the sultanate has doubled. The TRA expects subscribers to grow from more than 2.6 million today to at least 4.5 million by 2015. But the penetration of landline telephones and broadband internet has stagnated, with Omantel remaining the monopoly provider in both segments.

This led the TRA to declare earlier this year that "the people of the sultanate of Oman are yet to enjoy the fruits of liberalisation of [the] telecommunication service sector", adding that a new licence for fixed-line and internet providers would be sold by the end of the year. The government has specified that bidders for the Omantel stake must be experienced, multi-country network operators with at least five million customers. After submitting technical and financial proposals, a shortlist of bidders will be invited to the second phase of the sale.

Phase two will not be conducted as an open auction, a system which has led to bidding wars between deep-pocketed Middle Eastern operators in the past. Officials from Oman's Ministry of Finance said the sale would be closer to the "beauty pageant" system, where bids were assessed on financial and non-financial criteria. @Email:[e-mail]