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Wed 23 Nov 2011 09:05 AM

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Kuwait's Kharafi says will stick with Zain holding

Firm has twice tried to sell its stake but now says will back telco's expansion plans

Kuwait's Kharafi says will stick with Zain holding
Khafari Group has led two efforts to sell its controlling stake in Zain

Major Zain shareholder Kharafi Group, which has twice tried
to sell its stake in the Kuwaiti telecoms operator, will now stick with its
holding as the firm embarks on expansion plans.

Bader al-Kharafi, whose family and related companies are
thought to control about a quarter of Zain, and who sits on the company's
board, also said that Zain would not be selling any of its seven mobile
licences and planned to acquire Internet service providers to boost data

Kharafi's family conglomerate, which directly owns about 16
percent of the telecoms group, remains committed to Zain, he said, dismissing
speculation the family needed to sell up.

Kharafi Group has led two consortia that agreed to sell a
controlling stake in Zain. The last deal, a $12bn sale to the UAE's Etisalat,
collapsed in March.

When asked if the family was looking to sell its holdings in
Zain, Kharafi said: "No, we are not."

Kharafi has emerged as a higher profile figure in the family
conglomerate since the death of his father, Nasser al-Kharafi, in April. The
senior Kharafi built a business empire that spans real estate, retail and
financial services and is core to the Gulf state's economy.

It owns stakes in Kuwait Food Co, National Investments Co
and National Industries Group.

Kharafi said Zain would focus on implementing a new
strategy, which has been approved by the board and management.

"We are keeping all the assets and we are focusing on
improving them and investing in them," Kharafi said in an interview at his
Kuwait City office.

"The board is aligned. This is a new board and we have
approved our new vision, which is going into data, acquiring ISPs (internet
service providers) and submarine cables."

Bitter disagreement among Zain's board over the Etisalat
deal was among the reasons the UAE operator walked away.

Zain shareholders elected a new board in April, including
Kharafi, prompting one former member who was not re-elected and had opposed the
Etisalat deal to launch legal action.

A Kuwaiti court in September ruled the board meeting void,
but Zain has appealed and the latest hearing is expected this week.

"We are confident we did everything by the book and
according to the laws and regulations," said Kharafi, acknowledging that
Zain's day-to-day operations were affected by the protracted Etisalat

"During the year we were working on the deal, there
wasn't really a vision of putting more capex [capital expenditure]," said
Kharafi. "It was tough to make such huge decisions on behalf of the
company during that process."

In 2010, Zain sold most of its African assets to India's
Bharti Airtel for $9bn, reducing its footprint from 23 countries to just seven
and ending its plans to become a top 10 global telecom player. The deal enabled
Zain to pay out about $5.78bn in two dividends.

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"Zain's dividends weren't paid out because of liquidity
issues in the Kharafi group," he said. "The reason shareholders
invest in a company is to get returns and Zain made a good profit from selling
Africa so why keep that cash on the balance sheet?"

Zain's shares are down 40 percent in 2011, ending Monday at
a 21-month low while the Kuwait index has fallen 17 percent this year.

Like other Gulf operators, Zain is betting on data to help
offset falling voice margins as mobile subscriber growth stagnates.

The operator may also acquire new mobile licences or buy
other operators if the price is right, Kharafi said, and the telecom player may
spin off its network operations.

"It makes much more sense for the operator to lease the
network from a separate company and give them the headache of the operational
expenses," said Kharafi, adding Zain could set up network management
companies in conjunction with rival operators.

Zain, in which Kuwait government and associated institutions
also hold an estimated 30 percent stake, operates mobile licences in Kuwait,
Saudi Arabia, Sudan, Iraq, Lebanon, Jordan and Bahrain. Its total consolidated
debt is $1.9bn, while its available cash is $1.4bn.

In October, affiliate Zain Saudi, where Kharafi is also a
board member, announced plans to raise new capital.

"Zain is committed to be part of that capital
increase," said Kharafi.

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