Zain announces rich dividend

The Kuwaiti mobile operator announced it would pay more than three times its annual profit as a dividend to shareholders.

Changing priorities: Zain announced it would pay more than three times its annual profit as a dividend to shareholders.

Zain, Kuwait's largest public company, reported a drop of 39 per cent in yearly profits yesterday, a day after it announced the US$10.7 billion (Dh39.3bn) sale of its mobile networks in sub-Saharan Africa. But the company announced it would pay more than three times its annual profit as a dividend to shareholders, with analysts saying the move reflects the changing priorities of the company.

"It looks to me like Zain will increasingly be used as a cash-generation machine," said Irfan Ellam, a vice president of equity research at Al Mal Capital in Dubai. Mr Ellam said the "highly unusual" payment of a dividend larger than annual profits illustrated that the priorities of the company were shifting from rapid growth to paying returns to shareholders. Zain said it made a profit of 51 Kuwaiti fils (64 UAE fils) a share last year and would pay a dividend of 170 fils.

On Wednesday, the company's chairman said it planned to distribute a "substantial" portion of its $3.3bn in profit on the Africa sale as a special dividend to its shareholders. It expects the profit to be included in the company's second-quarter results. Simon Simonian, a telecommunications analyst at Shuaa Capital, said he believed the large dividend "partially takes into account expected proceeds" from the Africa sale, which is yet to be completed.

"We understand that the law in Kuwait does not allow companies to hold more than one [annual general meeting] and dividend distribution per year," he said in a research note. "If this is the case, then the next dividend distribution will have to be a year from now." The dividend announced yesterday was not linked to the sale, which has yet to be completed. Assad al Banwan, the chairman of Zain, said the "strength and durability" of the company's financial position enabled the dividend and that income from the Africa sale would enable shareholders to receive returns of a similar size in the coming years.

Following the sub-Saharan assets sale, Zain's most significant mobile holdings are those in Kuwait, Saudi Arabia and Iraq. Saad al Barrak, Zain's long-time chief executive, resigned in February. People familiar with the company said the departure was linked to a disagreement with the largest shareholder over Zain's future. The sources said Dr al Barrak wanted to turn the mobile operator into one of the world's 10 largest, a strategy he drove through its rapid expansion across Africa.

A shareholder, Kuwait's Kharafi Group, wanted to cash in on its holding by selling the African assets or a controlling stake in the company. Zain entered Africa five years ago with the acquisition of CelTel, a regional operator founded by the Sudanese telecoms tycoon Mohammed Ibrahim. The $3.4bn purchase was the start of a five-year expansion spree on the continent, which has ended with the sale of the African assets to Bharti Airtel of India.

Zain made a profit of $675 million last year, down on the $1.12bn it had earned in 2008. It did not report fourth-quarter figures, but the result suggested that it made a small loss in the last three months of the year. The global economic crisis, the effects of which swept across Zain's markets in Africa and the Middle East last year, made the period "the toughest in the company's history", Mr al Banwan added.

Shares in India's Bharti Airtel, which confirmed on Wednesday it would acquire Zain's African networks, fell by 3.8 per cent yesterday. The company announced it would pay $9bn in cash as part of the deal, and take on US $1.7bn of Zain's debt. [e-mail]