[size=8pt]Etisalat eyes 51% stake in Kuwait's Zain[/size]
by John Irish and Rania El Gamal on Tuesday, 21 July 2009


Emirates Telecommunications Corp (Etisalat) is interested in buying a 51 percent stake in Kuwait's Zain Group at the right price, the chief executive of its international unit said on Tuesday.

"We are interested in Zain as a whole, given the right values," Jamal al-Jarwan told Reuters in a telephone interview. "We're looking at a 51 percent stake in Zain," he added.

Etisalat, which operates in 18 countries, including Egypt and India, is one of a number of Gulf Arab telecom operators that have expanded overseas after losing their monopolies at home.

Both Zain and Etisalat operate in Nigeria and Saudi Arabia, making integration of the two there more complicated than entering a virgin market. "We need to sort out the overlap in Saudi Arabia and Nigeria," said Jarwan.

Zain, which is partly owned by the country's sovereign wealth fund, said on Monday it still hoped to sell its African unit despite French media and telecoms giant Vivendi calling off talks to buy a majority stake in the business.

Jarwan said on Tuesday that Etisalat, the region's second-largest operator by market value, was interested in "the whole package" and not just Zain's African unit.

"We overlap with Zain in many countries, but overall we're looking at it," he said. "Zain makes a compelling story for us."

Jarwan declined to comment on whether it was already talking to Zain about the possibility of taking a stake.

"Zain has no comment on that," Zain's spokesman Ibrahim Adel told Reuters on Tuesday.

Jarwan, asked by Arabiya television how Etisalat would finance the purchase, said: "There are several ways that we are studying now but we haven't reached a final conclusion about it. But in the end , it will be possible to bring about this sale of 51 percent."

Zain has a market capitalisation of about $17.3bn and a potential deal would be one of the region's largest mergers and one of the first cross-border deals.

Etisalat has long been on the acquisition prowl and said last November that it had more than $3bn in cash on hand to fund purchases in 2009.

It said on Tuesday it had bid for a fixed and mobile licence in OPEC member Libya.

The Abu Dhabi-based telecom firm is 60-percent owned by the UAE government, the world's third biggest oil exporter, and the emirate of Abu Dhabi controls 90 percent of the country's oil reserves.

Etisalat is facing stiffer competition in its home market of the UAE, where some analysts predict that a wave of job cuts could lead to a population decline, which would weigh on the profits of Etisalat and rival du.

Last year, Etisalat bought a 45 percent stake in new Indian operator Swan Telecom for about $900m.

"I don't think a takeover is possible because there are strong national interests in play here," said an analyst who asked not to be identified.

"Etisalat has a history of expanding through smaller operators, obtaining licences, not through multi-billion (dollar) deals."

A takeover of Zain by a foreign firm may not be disputed by Kuwait, whose sovereign wealth fund – the Kuwait Investment Authority (KIA) – owns 24.61 percent of Zain.

In 2007, Qatar Telecommunications bought a 51 percent stake in Kuwaiti mobile operator Wataniya for $3.72bn in the largest telecom acquisition in the region at the time.

KIA still owns 23.54 percent of Wataniya, according to bourse data.

Kuwaiti family-owned conglomerate Kharafi Group is Zain's second largest shareholder behind KIA, with 13.7 percent through one of its units, bourse data showed.

Shares of Etisalat closed 0.96 percent up in Abu Dhabi, while Zain's shares ended 3.45 percent up in Kuwait. (Reuters)