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Middle-East money moves on telecoms
Lina Saigol and Mark Odell
10/22/2005
As Europe's large telecoms groups hunt for deals outside their borders, they are coming up against a new type of competitor: Middle East-based companies flush with oil cash.
Saudi Arabia's Oger Telecom; Bahrain Telecommunications Corporation and the UAE's Emirates Telecommunications Corporation, are just some of those companies outbidding their European counterparts for prized assets across the Middle East.
"The search for growth has become an emerging markets game for many of the European telecoms incumbents. But there are new competitors in these markets, such as the Middle East telecoms players, which are flush with cash as the region reaps the benefits of high oil revenues, and have been able to outbid their European counterparts in recent transactions,"' says Paulo Pereira, head of European Merger and Acquisition (M&A) at Morgan Stanley.
Last month Turkey agreed its biggest ever privatisation deal, selling a 55 per cent stake in Turk Telekorn to a group led by Saudi Arabia's Oger Telecom for $6.5bn about 15 per cent more than the Russian bidders.
Now, the government of Tunisia, which is selling a 35 per cent stake in Tunisie Telecom has received expressions of interest from both European and Arab Gulf operators.
Fourteen companies have been shortlisted, including France Telecom, Telefónica of Spain, as well as Egypt's Orascom and Kuwait's Mobile Telecommunications Company. Official bids are due by December 5, with the winner announced on December 13.
Given that the European telecoms players are unwilling to overpay, the Middle Eastern telecoms companies are expected to be the most aggressive bidders.
"One of the most notable developments in the telecoms space over the past couple of years has been the emergence of sophisticated and financially powerful operators in the Middle East who are aggressively looking for additional growth opportunities outside their borders," said Sean Carney, global head of telecoms at HSBC.
"In recent auctions in Saudi Arabia, Turkey and Pakistan we have seen operators from the Middle East succeed over competition from more established operators," Mr Carney added.
Indeed, last year, Etisalat, the telecoms group from the United Arab Emirates, clinched the second mobile GSM licence in Saudi Arabia with a bid of $3.4bn, offering about twice as much as Vodafone had been prepared to pay in a process that attracted a dozen bidders, including most of the big western European operators.
"Telecom companies are now using very conservative criteria when it comes to evaluating deal values and few will be willing to risk overpaying for an asset," says Paul Gibbs, head of global M&A research at JPMorgan.
Few investors will forget the levels of wild bidding for telecoms, internet and media assets during the late 1990s, when companies spent huge sums on third-generation networks that left balance sheets bloated with debt.
But for the European players, the attraction of bidding for Middle Eastern assets is the promise of rapid mobile subscriber growth, with most western European markets at saturation point, in a region where fixed-line infrastructure is poor. The main ways of accessing these markets is either via privatisations or licence auctions.
Jorma Ollila, chief executive of Nokia, summed up his impressions of the region after a recent visit. "The buzz there in the Middle East, the Gulf and Africa is the same we saw in China seven or eight years ago in the early part of the market cycle, the same we saw a couple of years ago in Latin America."
Meanwhile, there are still a number of deals in key developing markets, besides Tunisia, where the European operators will again be faced by the might of their Middle Eastern counterparts.
About 15 companies are expected to vie for Telsim, Turkey's second-largest operator.
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Under syndication arrangement with FE
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