Alwaleed offer may pave way for Etisalat's $12bn Zain bid

Prince Alwaleed bin Talal’s bid to join with a partner to buy Zain’s holding in its Saudi unit may clear the way for Etisalat’s $12bn offer for a majority stake in Kuwait’s biggest phone operator.

Kingdom Holding Co, controlled by Saudi Prince Alwaleed, and Bahrain Telecommunications Co offered $950m for the 25 percent stake held by Zain, as Mobile Telecommunication Co is known, in Zain Saudi Arabia, the partners said on Monday in an e-mailed statement. The non-binding offer doesn’t include the $3.8bn of Zain Saudi’s debt and has received preliminary acceptance by the board of Zain Kuwait, the statement said.

“The bid will lead to increased optimism of a deal finally happening between Etisalat and Zain,” said Julian Bruce, director of equity sales at EFG-Hermes Holding SAE in Dubai.

Emirates Telecommunications Corp, or Etisalat, last month missed a second deadline in its attempt to acquire a majority stake in Zain. Abu Dhabi-based Etisalat said March 2 it is still interested in buying a majority stake in Zain. The stake purchase had been contingent on a timely sale of Zain’s stake in its Saudi unit.

Zain’s second-biggest shareholder, Al Khair National for Stocks & Real Estate Co, which is owned by Kuwait’s Kharafi Group, was leading the talks with Etisalat on its bid for Zain. Etisalat declined to comment today on the status of its talks.

Kingdom Holding and Bahrain Telecommunications, the Arabian Gulf state’s biggest phone company known as Batelco, expect to submit a binding offer by mid-May, subject to successful completion of the due diligence, Batelco CEO Peter George Kaliaropoulos said in the statement on Monday. Due diligence could take at least six weeks, the statement said.

“The combination of Batelco and Kingdom offers the best of both worlds, operating experience combined with influence and track record in KSA,” Bruce said.

Kingdom Holding shares surged as much as 8.1 percent to SR10.1 on Monday. They were 4.8 percent higher at 12:00 pm in Riyadh. Zain Saudi shares surged 7.7 percent to SR7.7, the highest intraday level since February 20.

“It’s a generous offer,” said Irfan Ellam, an analyst at Al Mal Capital in Dubai. “It means Etisalat’s bid for Zain Group can go through once this happens.”

Etisalat’s purchase of Zain would “create a company with the best footprint in the Middle East, an Arabian company that stands on the world stage of telecoms,” he said.

If completed, the deal will extend Etisalat’s reach in the Middle East, where Zain operates in countries including Kuwait and Iraq. Etisalat offers telecommunications services in eighteen countries in the Middle East, Africa and Asia, counting more than 100 million customers, according to its website.

Etisalat plans to finance its $12bn offer for control of Zain in three stages of loans, with the first $6bn as a bridge loan payable in eighteen months, Etisalat chief financial officer Salem Al Sharhan said in a phone interview in January. Etisalat would also borrow $3bn payable in three years and another $3bn payable in five years, Al Sharhan said.

Zain’s board last month rejected separate offers from Kingdom and Batelco to buy the stake in its Saudi unit. The decision was seen as thwarting Etisalat’s bid for a 46 percent stake in Zain as the Emirati company had said Zain needed to sell its stake in the Saudi unit in a “timely fashion” for the deal to proceed.

“The offer was reasonable to all parties,” Prince Alwaleed said in today’s statement. “Our investment in Zain Saudi Arabia is a strategic investment decision by KHC to enter the telecommunications sector in a large and promising market such as Saudi Arabia, making this deal our initial entry for future expansion in the telecommunications sector regionally.”