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Mon 21 Mar 2011 12:15 PM

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Lower priced for sale sign hangs over Kuwait's Zain

Zain still seen for sale, but price likely to be lower; new bidders unlikely to qualify for record dividend

Lower priced for sale sign hangs over Kuwait's Zain
(Getty Images)

Kuwait's Zain should remain for sale following Etisalat's failed $12bn takeover, but buyers will be wary, with nearby Bahrain under martial law and borrowing costs and risk both rising.

Any buyer will also miss telecoms operator Zain's $3.1bn dividend payout, so would likely bid below Etisalat's KD1.7-per-share offer for a 46 percent controlling stake, which the UAE firm withdrew on Saturday.

Zain shareholder, the Kharafi group, was the architect of the Etisalat deal, but rival shareholders were unhappy Kharafi would net all brokerage fees and exclude them from the sale.

"Unlike a lot of telecoms companies, Zain has financial investors at the helm and they are likely to remain sellers," said a telecoms analyst who spoke on condition of anonymity.

In January, a Zain board member said Turkey's Cukurova Holding was in talks to buy a 29.9 percent stake in Zain, but no formal offer was made. Vivendi earlier eyed Zain's African assets and France Telecom is chasing growth in the Middle East and Africa.

"Once regional markets stabilise, Kharafi could be a seller again and there are potential buyers - Zain has good assets and is the number one or two player in almost all markets in which it operates," said Irfan Ellam, Al Mal Capital telecoms analyst.

Zain, which operates in seven countries, will sign a preliminary contract to sell its quarter-stake in affiliate to Zain Saudi to joint bidders Kingdom Holding and Kingdom Holding , a Zain source said on Sunday.

This had been a prerequisite for the Etisalat deal, but Zain said it would continue.

Zain and Etisalat had agreed terms in September, with Etisalat expecting to qualify for a record Zain 200-fils-per-share dividend, netting it $1.4bn, according to calculations.

This windfall will follow Zain's $9bn African asset sale to India's Bharti Airtel last year.

However, Etisalat missed a January due diligence deadline and the chances of it completing a transaction before Zain's expected May payout were increasingly remote.

Without the dividend, Etisalat would be reluctant to pay KD1.7 per share - Zain fell 4.4 percent to KD1.3 on Sunday - and a revised bid would probably fall foul of new Kuwait market rules announced in March.

These require buyers of more than 30 percent of a listed company to extend offer terms to all shareholders. It is not retrospective.

"Any new bid to take control of Zain would have to involve minority shareholders, whereas the Etisalat deal was essentially a private placement," said Kunal Bajaj, HSBC telecoms analyst.

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