UAE-listed Emirates Telecommunications Corporation (Etisalat) is considering more telecom buys in the Middle East and North Africa, including in Egypt where an IPO is in the cards, according to two company sources.
Earlier in the year, Etisalat acquired French media and telecoms group Vivendi's 53% stake in Maroc Telecom for EUR 3.9bn, as reported.
"We could see other Western players such as Orange making similar exits to that of Vivendi in MENA and if so we would like to look at those assets," the first source said. Egypt is among the target countries, he said, although a second company source cautioned that potential antitrust concerns could prevent Etisalat, which is already present in Egypt through its 66% ownership of Etisalat Misr, from making a large acquisition in the country.
Telecom deals in Egypt are considered by the telecom regulator rather than competition authority and each deal is treated individually, a competition lawyer said, adding that it is difficult to forecast the outcome of such considerations especially when foreign capital is involved.
Orange owns mobile phone operator Mobinil in Egypt but having fought for Mobinil for several years and having paid a high price for it, Orange is unlikely to give up these assets so quickly, analysts said. In 2012 Orange took further control of Mobinil raising its stake to 94% for EUR 1.5bn. Moreover, the government is set to introduce a new unified licensing regime for fixed and mobile networks in 2015, which will lead to the emergence of new aggressive players determined to gain market share, making Mobinil less appealing for would-be buyers, a Cairo-based analyst said.
In 1Q14 Mobinil's net profit amounted to EGP 71m (USD 10m) compared to EGP 64m (USD 9m) for the same period in 2013, according to the company's consolidated financial statement. 1Q14 operating revenues were EGP 2.5bn (USD 377m) compared to EGP 2.6bn (USD 274m) in 1Q13.
By law, state-controlled fixed line operator Telecom Egypt (TE) has to exit its 44.9% ownership in Vodafone Egypt (VE) within a year after getting a mobile phone license, the industry source added, as a single company cannot own significant stakes in two telecom operators. But according to the Cairo based analyst, the licenses are not officially signed and/or launched yet. The discussions are still ongoing between the authorities and the mobile operators. Operators have requested some changes regarding the initial license terms, he added.
Etisalat is also specifically looking at telecom targets in Algeria, the first source said. Iraq is also a possible market for Etisalat, although the situation there is "complex" at the moment, the source added.
There are three main telecom players in Algeria: Djezzy, Nedjma and Mobilis. The Algerian government owns majority stakes in Djezzy (51%) and controls Mobilis through Algerie Telecom. The government may be interested in merging its assets rather than in selling them, the second analyst said. If the government decides to put any of these assets on sale, Etisalat would not be the only bidder as Algeria is a big economy and such assets would attract the attention of other telecom players, he said.
Iraq is dominated by three telecom players: Ooredoo, Zain and Korek. Orange owns 20% in Korek and it is not impossible that it may decide to leave this asset, the analyst said. The Iraq government may also issue a fourth mobile license, he added.
Meanwhile, Etisalat Misr has appointed EFG-Hermes to prepare for a USD 500m IPO, according to news reports.
The second source said that the IPO was still in the early stages.
Etisalat Misr has been looking to list its shares since its establishment in 2007, said an Egypt-based investment banker. The company has been making profits for the past two years, which qualifies it for a listing. The IPO would constitute a capital raise and it is unlikely that Etisalat or its Egyptian partner, the state-owned Egypt Post would exit or sell stakes during the IPO, the banker said.
Some of the IPO proceeds would be used to pay off a USD 1.24bn syndicated loan and some for new investments. Investments include applying for a 4G license and acquisition of value-added services like e-finance companies, he suggested.
Some of the proceeds could also be used for acquisitions, the second source said, adding that Etisalat could be interested in any divestments of telecom towers as assets.
Etisalat could look to acquire complementary services like telecom towers or internet companies, a Cairo-based industry source echoed.
Etisalat has a market cap of AED 90.9bn (USD 24.8bn).