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Etisalat seen pursuing Zain, more cautious on India

If Zain is finalised, India may be scrapped-analyst.

October 4, 2010 3:24 by



UAE’s Etisalat would have no trouble financing a bid for both Kuwaiti group Zain and Indian company Reliance Communications , but may put the latter on hold as it focuses on the Middle East market.

Etisalat, the Gulf Arab region’s second-largest carrier, has bid for a 46 percent stake in Zain estimated to be worth nearly $12 billion, but was also in talks for 26 percent of Reliance.

But Etisalat, three-fifths owned by the United Arab Emirates government, already has a licence in India and has said a Reliance tie-up is not its only option

Formally known as Emirates Telecommunications Corp, Etisalat has bid 1.7 dinars per share for the stake in Zain, the Gulf Arab region’s third-largest telecoms company,. The potential deal has put in question the fate of Etisalat’s plans in India.

“Etisalat might be abandoning any major deal related to India if the Zain deal goes through,” said Marise Ananian, telecoms analyst at EFG-Hermes, but added the reasons for this would not be financial given the company’s strong finances.

“An acquisition in Zain could compensate for the slowing growth due to maturity in their home market as Zain is present in growing markets such as Sudan and Iraq,” she added.

Etisalat, majority owned by the government of the UAE, has been expanding outside its home region, with a focus on emerging markets, after losing its monopoly to local rival du  three years ago.

If concluded, an investment in Zain would help propel Etisalat into high-growth markets in the Middle East where Zain has a strong foothold.

“In my opinion, the local investor here would be more comfortable with Zain than India,” said Mohammed Ali Yasin, chief investment officer at CAPM Investments in Abu Dhabi.

Etisalat agreed to buy 45 percent of India’s Swan Telecom for around $900 million in September 2008. The UAE telco, rebranded Etisalat DB in India, launched services in March this year and has reached 30,000 subscribers at end-July

Debt-laden Reliance Communications, controlled by billionaire Anil Ambani, said in early June it was looking to sell a 26 percent stake in the firm and so far, only Abu Dhabi-based Etisalat has acknowledged an interest.

Etisalat’s international chief told Reuters in September he did not expect a deal with Reliance in 2010, and said different options in India, including an investment in Idea Cellular, were on the table.

KEEN ON BOTH DEALS

Other analysts, however, said Etisalat would have no problem pursuing both deals.

“I don’t forsee Etisalat having issues in funding both the Zain deal and any potential deal in India. It is net cash positive and the balance sheet is very strong,” said Irfan Ellam, telecoms analyst at Al Mal Capital.

Ellam forecast Etisalat’s EBITDA – earnings before interest, taxes, depreciation, and amortisation – for 2010 at 19.3 billion dirhams ($5.25 billion), which would enable it to comfortably finance the deals through a combination of equity and debt.

“Etisalat could comfortably borrow three times their EBITDA, a total of around 60 billion dirhams,” he said.

Another analyst did not expect a deal with Zain to hamper Etisalat’s potential acquisition in India.

“I think it will go for both deals,” said Rami Sidani, head of investment at Schroders Middle East.

Etisalat, sitting on $1.6 billion in cash at present, is expected to undergo a rights issue and finance its upcoming deals through a combination of equity and debt, Sidani added.

Its current foothold in the Indian market would give Etisalat options for merging operations if it decided to pursue further acquisitions, said Shardul Shrimani, telecoms analyst at IHS Global Insight.

“Etisalat is still keen on Asian assets, India in particular fits in line with its growth strategy in emerging markets,” he said.

(Reporting by Tamara Walid; Editing by David Cowell)



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