Questions arise over Zain stake sale

One of the largest foreign acquisitions in GCC history is in the spotlight as new questions emerge about the acquiring consortium.

One of the largest foreign acquisitions in GCC history is in the spotlight as new questions emerge about the consortium that announced it would acquire 46 per cent of Kuwait's telecommunications giant Zain Group for almost US$14 billion (Dh51.42bn). Two state-owned Indian telecommunications companies originally announced as part of the group have denied being involved in the deal.

And issues have been raised about the lead member of the consortium, India's Vavasi Group, by a Bahraini government minister and a respected leader of India's technology industry. Zain's management have yet to publicly acknowledge the acquisition, which is unusual considering the size of the proposed deal. Reuters also reported banking sources saying that apparently no members of the consortium of buyers have approached major lenders to discuss financing, a move that would be expected in the preparation for such a large acquisition.

Zain shares, which have doubled in price since May, have declined by 18 per cent since the beginning of the week when news of the 46 per cent stake sale first emerged. On Tuesday night, Farid Arifuddin, the managing director of Vavasi, gave a press conference in Kuwait alongside Bard al-Kharafi, the vice president of the Kharafi Group, the investment company that is offering to sell its stake in Zain.

Reports from the press conference said the consortium of buyers included two of India's largest state-owned telecoms: Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL). The two telecoms companies were also listed as buyers in a stock market disclosure by Kharafi. But both companies have denied their participation in the consortium. "MTNL and BSNL would like to clarify that no view has been taken regarding participation in the said consortium," they said in a joint statement on Wednesday. An unnamed BSNL executive, quoted in India's Economic Times on the same day, said: "Just because we gave certain people a hearing, our names cannot be used by them and we cannot be linked to any consortium". The Indian telecoms are not alone in distancing themselves from Vavasi after being announced by the company as partners. Vavasi's most prominent announcement prior to heralding the Zain acquisition was the signing in March of a memorandum of understanding to develop an $8bn high-tech silicon factory in the Indian state of Rajasthan. C S Rajan, Rajasthan's secretary for industry, said that during discussions with the ministry, Fahmi Bin Ali al Jowder, Bahrain's minister of works, was mentioned by Mr Arifuddin as a backer of the project, one of the largest proposed investments into Rajasthan. But Mr al Jowder said yesterday that this was "not true", denying any involvement in the project. And Sam Pitroda, a high-profile entrepreneur, inventor and adviser to successive Indian governments, said on Wednesday night that he had no association with the firm, despite numerous press reports in 2007 and last year listing him as a backer. "I'm not a shareholder, not a manager, not a backer. I have never dealt with them," Mr Pitroda said. An official in India's department of information technology, who is working on the federal government's approach to Vavasi's Rajasthan project, said the government had many unanswered questions regarding the company. "We did not find the company to be having a very well-known operation," R Dutta said. "We would like to find more about it before going forward. We have to ascertain many of the facts about this company before we go ahead." * additional reporting by Richard Orange [e-mail]