KUWAIT/DUBAI: UAE telecom Etisalat's $12 billion bid for a stake in Zain is in jeopardy after the Kuwaiti telecoms firm failed to meet a key condition and a major shareholder refused to allow more time for the deal.
On Sunday Zain rejected all bids for the sale of its stake in its Saudi operations on Sunday, a key regulatory requirement for the Etisalat deal to go through.
Abu Dhabi-based Etisalat, keen to expand outside its home market after losing its monopoly in 2007, had offered to buy a 46-percent stake in Zain last September from major shareholder Kharafi Group, a family-run conglomerate.
But the deal has been plagued by delays, including a lawsuit from unhappy Zain shareholders, and Etisalat has twice extended a self-imposed Jan. 15 deadline to finish due diligence.
"There's now a low probability the Zain-Etisalat deal will go through, which will leave Kharafi back at square one and looking for another buyer," said a regional telecoms analyst who asked not to be identified. Zain shares fell 7.3 percent, their biggest decline in eight months, but stock in Etisalat, the Gulf's largest telecoms firm, slipped just 0.9 percent at the prospect of the troubled deal running aground.
"The deal would move Etisalat from being a conservative, low gearing company to one that is heavily indebted," said Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments, who favored the deal.
"Some investors may think Etisalat is overpaying and would be relieved if it fell through."
Etisalat, which had originally said it would present the results of its due diligence report to its board by end-February, told Reuters last week it would be completed by end-March.
That drew the ire of Kharafi Group, which rejected any further extensions on Sunday.
"I think that's a very clear statement from the (share) owner. The management has nothing to do with it," Zain Chief Executive Nabil bin Salama said at a press conference to discuss the departure of Zain's chief operating officer.
Etisalat on Sunday said it regretted Zain's dismissal of the bids but was comfortable with the ongoing due diligence process and still saw it done by the end of February.
ZAIN REJECTS SAUDI UNIT BIDS
Zain must sell its 25-percent stake in Zain Saudi , valued at $750 million, to avoid overlap with Etisalat which also operates in the kingdom through affiliate Mobily.
Zain got three bids for the stake from Saudi billionaire Prince Alwaleed bin Talal's Kingdom Holding, Bahrain Telecommunications and an investment consortium led by Al Riyadh Group.
A source with knowledge of the bids said the board deemed the Batelco bid as too low while Kingdom Holding did not want to taken on Zain Saudi's debts. The third bidder, the consortium led by Al Riyadh, was not considered because it was unclear who was behind the group.
Batelco's offer would have included a "significant" cash injection into the debt-laden firm, its chief executive said on Sunday.
Zain Saudi has racked up mounting losses since launching services in August 2008 and has an estimated $3.9 billion of debts.
"Given Zain Saudi's balance sheet, it isn't a great company in terms of valuations and Zain's management probably wanted more than was offered by bidders," said the telecoms analyst.
Prince Alwaleed said Kingdom's offer was "a reasonable one" on Sunday and the investment firm had decided to stick to its original bid and not revise it.
Kingdom shares were down 2.2 percent in Saudi Arabia on Sunday, after falling 9.8 percent on Saturday, the first day's trade since its self-imposed Feb. 16 offer deadline had passed.
"The implications are not good for the Zain-Etisalat deal unless the Saudi regulator allows an Etisalat-controlled Zain to temporarily maintain a stake in Zain Saudi until a buyer can be found," said Irfan Ellam, Al Mal Capital telecoms analyst.
"There are too many unknowns."
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