Saudi Telecom unveils $10B warchest

KUWAIT-SAUDI-TELECOM

State owned fixed line monopoly Saudi Telecom (STC) unveiled a $10b facility, which will be used to take part in a number of Middle Eastern license acquisitions which are due to be launched in 2009.

“”We can do SR40bn of acquisitions in the next few years. We have no problems with doing that at all”” Khalid al-Ghurair, Saudi Telecom Mobile  has SR40bn ($10.7bn) available for the acquisition of new licences and stakes in other operators, Khalid al-Ghurair, general manager for financial planning and budgeting at the company, tells.

In January, Bahrain and Iran will award new licences or management contracts. Tunis has set a deadline of 5 May for bids for a new telecoms licence, and Algeria, Morocco and Iraq have also committed themselves to auctions. In addition, Lebanon is planning to issue management contracts for two mobile telecoms networks before the end of the year, and Jordan is also planning to auction its first 3G network in 2009. The number of licences on offer means that regional operators will be under pressure to find funding to take advantage of as many of the growth opportunities as possible.

STC is pretty much a late comer to the international market, its hand being forced when its mobile monopoly was broken in 2005. It lost its mobile service monopoly to Etihad Etisalat (Mobily) in 2005, while a consortium led by Kuwait’s Mobile Telecommunications Co (Zain). made the highest bid for a third mobile license in March, offering $6.11 billion. Mobily was able to capture 30 percent of the market within 18 months of starting operations.

In response, STC made some acquisition plays in 2007 , when it acquired a 25 % stake in Malaysia’s Maxis and 26 % of Kuwait’s third mobile licence. Earlier this year, STC acquired a 35% stake in Saudi based Oger Telecom, which brought interests in Turkey (Turk Telekom / Avea) & South Africa (CellC). Further regional acquisitions will probably remain at the same level, STC seems comfortable with taking non-controlling stakes & spreading it’s exposure.

“”We could have gone for majority with Maxis, majority with Kuwait and majority with Oger Telecom, but we are very cautious,”” says Al-Ghurair. “”We are not risk takers.”” In total, Saudi Telecom spent SR24.5bn on the three international deals. It has built up debt of 1.3 times its earnings before interest, tax, depreciation and amortisation (ebitda), partly through the acquisitions, according to Standard & Poor’s.

 

STC has enjoyed monopoly status regards fixed line, up until this year, regulators have now opened the market & there are three new players planning to launch services in 2009. The Optical Communications Company (OCC) is a joint venture between local partners, Verizon (NYSE – VZ) & MSV favourite Millicom International, with other franchises being put together by Hong Kong’s PCCW  (HK – 0008) & regional player Batelco (Bahrain Telecom). The Kingdom remains a strong growth opportunity for fixed line operations as less than 17% of the population currently enjoy fixed services & internet penetration remains at circa 4%.

Verizon has just announced that it will be investing $3B into the OCC joint venture, whilst the PCCW consortium has failed to raise cash via an IPO as expected, due to poor market conditions. Part of the pre-requisite for any of the deals is for the Saudi state pension fund to take a 5% stake, which until now it has demurred to do.

STC received good ratings earlier this  year, Standard & Poor’s Ratings Services assigned STC with ‘A+’ long-term and ‘A-1’ short-term foreign currency corporate credit ratings. Moody’s Investors Services assigned A1 long term local and foreign currency issuer ratings, which will obviously help buoy shareholder confidence & also help in capital markets for the upcoming licensing round. Local competitors such as Zain, have exhausted themselves financially with recent rapid growth in Asian & African markets, which should allow STC to make some real penetration in 2009.

The main competition for me will be Emirates based EtiSalat, which has access to some deep pockets, as it is effectively owned by the Al-Makthoum family, EtiSalat has already managed to acquire a license in Iran & has been expanding into Africa for some time. If STC is to compete, I think they will have to look at raising more than $10B & the S&P / Moodys ratings will surely come into play to that effect. Whatever the outcome at a business level, I can only conclude that this is good for the Middle Eastern region, freeing up access & allowing mass communication on a greater scale.

UPDATE (05/01/09) : Saudi Telecom eyes government stake in Batelco

Saudi Telecom Co (STC) is eyeing the Bahraini government”s 36.7 percent stake in Bahrain Telecommunications Co (Batelco), a Kuwaiti newspaper said on Sunday. Local newspapers said in an unsourced report that the Saudi firm had submitted a request to Bahrain”s biggest telecoms operator to buy the stake.An STC spokesman could not be reached for comment while a Batelco spokeswoman declined to comment on the report because it related to shareholder issues.
Mumtlakat Holding Co, the investment arm of the Bahraini government, holds a 36.7ـpercent stake in Batelco, according to its website. Mumtalakat”s spokesman Adel AlـAnsari could not immediately comment on the newspaper report.
Batelco is a shareholder in Etihad Atheeb Telecommunications Co, one of three firms licensed to operate new fixedـline networks which would end STC”s monopoly status in this segment.

UPDATE 2 : (29/01/09)  : From Mobile News on WordPress : STC Bags 3rd Mobile Licence in Bahrain

The Telecommunications Regulatory Authority (TRA) today announced that Saudi Telecommunications Company (STC) is the successful bidder for the third mobile Licence in Bahrain with a bid of Bahraini Dinars eighty six million six hundred eighty seven thousands (BD 86,687,000.000)

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