Published October 07, 2012
DUBAI – Qatar Telecom (Qtel) has nearly doubled its stake in Kuwait's No.2 operator Wataniya to 92.1 percent, giving an instant boost to its bottom line and more control of subsidiaries in the high growth markets of Algeria and Tunisia.
Qtel, which operates in 16 countries across the Middle East, Africa and Asia, will pay 519.1 million Kuwaiti dinars ($1.8 billion) at 2.6 dinars per share to raise its stake in Wataniya from 52.5 percent, it said in a statement on Sunday.
"For the past couple of years the geopolitical situation in the Middle East has made it riskier to buy into new assets, so Qtel has prioritized raising its stakes in existing units where it knows the market and the other shareholders," said Marc Hammoud, Deutsche Bank telecoms analyst, in Dubai.
Qtel consolidates Wataniya's net profit on a pro rata basis. In 2011, the firm made a net profit of 362 million dinars from its operations in Kuwait, Algeria, Tunisia, the Maldives, Saudi Arabia and the Palestinian Territories.
Wataniya owns 71 percent of Algeria's Nedjma and 75 percent of Tunisia's Tunisiana, with this pair's revenue up 33 and 116 percent respectively last year, according to Qtel's results.
Yet Kuwait accounted for about 90 percent of Wataniya's net profit last year, with the country's average revenue per user (ARPU) among the highest in the Gulf.
"Tariffs aren't expected to decline substantially and this was an opportunity for Qtel to up its stake in a cash cow," said Abhinav Purohit, an analyst at IDC in Dubai.
Wataniya has an estimated 39 percent share of Kuwait's mobile subscribers, with Zain claiming 41 percent and Saudi Telecom Co's <7010.SE> (STC) affiliate, Viva, 20 percent.
"For many years, Wataniya did very well against Zain, but the market has changed since the launch of Viva, which has STC's backing and thus has been quite aggressive," said Abhinav. "This will allow Qtel to better deal with competition and also give it more lobbying power in Kuwait."
The latter is important because Kuwait does not have a telecom regulator. The Ministry of Communications is a de facto watchdog and also ultimately owns and operates the fixed-line infrastructure, which has long been earmarked for privatization.
"Qtel will be better placed as new opportunities emerge in Kuwait, especially in fixed lines," said Purohit.
Qtel did not state whom it bought the Wataniya shares, but on Saturday sources told Reuters the Kuwait Investment Authority (KIA) had agreed to sell its 23.5 percent stake.
Deutsche's Hammoud said the KIA's decision to sell its entire holding in Wataniya could set a precedent, with the government also owning stakes in Zain and Viva.
Bourse rules do not allow Qtel to force remaining shareholders to sell.
"There are no delisting plans and Qtel won't go to minorities with a better offer to buy them out," said a banking source familiar with the matter. "For Qtel, a 90-percent control is more than enough."
The Wataniya deal is Qtel's second major buy this year after agreeing in June to double its stake in Iraq's No. 2 operator Asiacell to 60 percent for $1.47 billion.
"Are we going to see more majority shareholders looking to buy-out minority stakeholders in the sector? My answer would be yes," added the banker.
Yet Qtel is unlikely to take full control of Tunisiana, despite the government set to offload its remaining 25 percent stake, because it wants to sell to a financial investor, rather than a telecom firm.
Qtel was advised by Barclays Capital and the investment banking arm of National Bank of Kuwait on the deal. Consulting firm Protiviti advised Wataniya.
(Writing by Matt Smith; Editing by Sanjeev Miglani)