New Delhi: India’s state-owned phone companies, Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL), are considering the purchase of a controlling stake in Kuwait’s biggest telecom operator, Zain, for about $14 billion (Rs67,900 crore).
S. Behura, secretary at the department of telecommunications (DoT), confirmed that the government-owned companies had been approached and said that BSNL and MTNL were yet to take a decision on the acquisition.
BSNL and MTNL are among a proposed group of investors led by the little-known Vavasi Group and Malaysia-based billionaire Syed Mokhtar Al-Bukhary, said another DoT official on condition of anonymity.
Decision awaited: S. Behura, secretary at the telecom department. Harikrishna Katragadda / Mint
The Indian firms issued a press release saying no view had been taken on participation in the consortium buying the 46% stake in Zain. “However, MTNL and BSNL are always on the lookout to explore all types of overseas business opportunities to expand their operations,” they said.
BSNL and MTNL are yet to be formally brought on board, said Farid Arifuddin, managing director of Vavasi Telegence Pvt. Ltd. The state-owned firms have the money to spend on acquisitions. BSNL has cash reserves of around Rs37,000 crore ($7.6 billion) and MTNL has Rs11,000 crore ($2.22 billion), according to public information.
Vavasi Group’s Telegence unit and Al-Bukhary lead the group that includes the Indian state-owned companies, but the exact proportion of the stakes to be held by the four partners is unclear. No decision has been reached on how the stake would be divided among the consortium partners, Vavasi’s Arifuddin said, adding that the group had been in discussions for seven months on a potential deal.
Zain is in talks to sell the stake, Bader Al-Kharafi, a top executive of Kuwait’s Al-Kharafi Group, the largest private shareholder in Zain, told reporters at a press conference late on Tuesday in the Arab nation. The sale would be carried out in four months and would include the approximately 20% Al-Kharafi holding along with stakes belonging to others, he said.
The possible deal comes as India’s largest telecom operator, Bharti Airtel Ltd, is said to have reached a $24 billion merger agreement with MTN Group Ltd, the biggest phone company in Africa and the West Asia by market capitalization. The two firms have extended until the end of September the deadline for the end of exclusive negotiations for a potential merger through a complex $23 billion deal.
Overseas expansion allows the firms to enter markets where the average revenue per user (Arpu) is higher than in India, where increasing coverage and competition is leading to a contraction in Arpus.
Vavasi says on its website that it was “incorporated in India in 2001 with a vision to bridge the infrastructure divide across the globe. Its interests include telecommunications, real estate, renewable energy, aviation and steel and cement.”
An analyst with an overseas brokerage, who didn’t want to be named as he’s not authorized to speak to the media, said there was little information on Vavasi. Their website “doesn’t say who the promoters are and where they are getting the money,” he said. “The deal is being driven by the Malaysian billionaire but MTNL and BSNL have yet to formally join the consortium.”
Kuwait’s National Investments Co. is arranging the deal on behalf of local investors, he said. The Kuwaiti government owns the largest stake of 24.6% in the country’s oldest mobile operator.
The company said in a release on the Kuwait bourse website that the transaction would be priced at $7 a share. Zain, with a paid-up capital of $1.49 billion representing 4.275 billion shares, had a market capitalization of $20.59 billion as of Wednesday. A 46% stake at two Kuwaiti dinars (Rs341) a share values the deal at $13.7 billion. Zain shares were trading at around 1,380 Kuwaiti dinars. A 10% stake is held by directors in the form of treasury shares, which do not have voting rights.
National Investments Co., owned by the Kharafi Group, said on Monday that one of its portfolio clients, Al Khair National, was considering a sale of its Zain stake.
“The involvement of small investors in this deal is according to the agreement (between them) and Al Khair, with the same price,” Bard Al-Kharafi said on Tuesday, adding that the majority of the other Zain shareholders involved in the deal were small, permanent stakeholders.
Last week, Zain shareholders abolished decades-old restrictions on ownership to enable foreign investors to take up a controlling stake in the Emirate’s oldest mobile operator.
The company has operations in 24 countries with almost 70 million subscribers in the Middle East and Africa including countries like Bahrain which enjoy a 199% telecom penetration to Niger which has 14%. The firm has Arpus ranging from $3 in Ghana to $54 in Kuwait giving India’s telecom companies, facing dwindling Arpu (less than $7), a significant incentive.
India ended July with 479.1 million telephone subscribers with BSNL having 84.6 million, including 55.9 million wireless customers.
MTNL had 8.8 million subscribers including 4.64 million wireless customers.
Zain is the largest of the three mobile operators in Kuwait, along with National Telecommunications and Kuwait Telecommunications Co.
Bloomberg and Reuters contributed to this story.