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First with Financial Comment from Arabia

Logic to Zain cashing out of African telecoms for $10.7bn

with one comment

Kuwait based telecommunications giant Zain says it is considering the sale of most of its African businesses following a $10.7 billion offer by Bharti Airtel of India, and is entering exclusive negotiations until March 25th.

The offer comes only two weeks after Zain CEO Saad Al Barrak resigned. The brilliant Mr. Al Barrak built up Zain from its roots as MTC and has been the key force in its development since 2002. His resignation has not been explained.

Zain a big success story

A logical supposition would be that Mr. Al Barrak was opposed to the break up of Zain. This correspondent can well remember Mr. Al Barrak’s email requesting an interview many years ago, a rare event among leading Arab businessmen who usually prefer to have journalists run after them.

But are the dominant shareholders of Zain, the Kharafi family, right in wanting to cash out of Africa at this point? Operations are at a relatively early stage with seemingly excellent growth prospects, although unprofitable at the moment.

Perhaps that is the point. Many investors in Africa have stuck around long enough to see their investments trashed by politics and misgovernment. Sometimes it is wise to sell out while hopes are highest, and not to wait to find out if they are misplaced.

Then again Zain shareholders might be taking a view on global stock markets and the current high valuations given to telecom groups. If stock markets correct and begin to reflect a longer depression in global business activity then the value of their telecom assets in Africa will suffer.

Opportunity or future disaster?

We can imagine Mr Al Barrak’s view. He sees the low mobile penetration rate in Africa as one of the last great opportunities in the telecoms sector. That is what he told me five or more years ago. Clearly Bharti Airtel must share this vision.

Yet if Zain is to conclude a deal on its African operations then it had better get a move on. For if global stock markets take another tumble it will be very difficult to close a deal like this, and the opportunity may be lost.

Then Zain will be stuck with African telecoms for the long-haul. Perhaps an eagerness to sell is understandable, and Bharti Airtel is overpaying at the top of the market.

This would be the second largest overseas acquisition ever by an Indian company. Tata Steel paid $12.9 billion for UK steel group Corus in 2007. Whether it proves a good buy only time will tell.

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Written by Peter Cooper

February 15, 2010 at 10:38 am

Posted in Banking, Kuwait, Media

One Response

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  1. African Market is good to Bharti, but to make profit it might take 4-5 years time. Currently African Zain is lose making telecom.. Good luck to Bharti

    Jag

    February 15, 2010 at 5:55 pm


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