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the MENA division of the Economist Intelligence Unit, which doesn’t bode well for takeovers in general. “The outlook for M&A activity is pretty negative in light of what’s happening. Financing for big buyout projects will be harder to come by because banks are becoming more credit focused, a trend that accelerated last year. “Banks are not as willing to underwrite projects. In Dubai, this was going to be the year of rebuilding and growth for commercial lending, but industrial borrowers are finding that they’re struggling with the increased attention of banks on credit risk and credit worthiness. Plus, banks will be looking at the current political environment and likely tighten their requirements even more.” Bell adds: “You might see a pick up in syndicated loans, because local banks in particular are keen not to be the single lender on a deal.” Fundamentally, telecoms operators in the GCC are facing increasingly saturated home markets, especially on mobile phone SIM card subscriptions. SIM penetration is around 150 per cent to 200 per cent in the Gulf compared to China, India and Indonesia, which have levels ranging between 41 per cent and 66 per cent. Chandresh Bhatt, the assistant vice president for the research group at Kuwait’s Global Investment House, says: “Expanding operations beyond their home turf is the only way forward, especially for incumbent operators. Since the last few quarters we have also seen that these operators are facing intense competition from second and third operators. They are losing their market share and facing an Average Revenue Per User squeeze in home countries and therefore their revenues and margins are under pressure. So acquisitions are the only way for them to bring growth.”
È=LE;8D<EK8CCP# K<C<:FDJ FG<I8KFIJ @E K?< >:: 8I< =8:@E> @E:I<8J@E>CP J8KLI8K<; ?FD< D8IB<KJ# <JG<:@8CCP FE DF9@C< G?FE< J@D :8I; JL9J:I@GK@FEJ% J@D G<E<KI8K@FE @J 8IFLE; (,' G<I :<EK KF )'' G<I :<EK @E K?< >LC= :FDG8I<; KF :?@E8# @E;@8 8E; @E;FE<J@8# N?@:? ?8M< C<M<CJ I8E>@E> 9<KN<<E +( G<I :<EK 8E; -- G<I :<EK%É The $12 billion failed Zain deal was a major set back for Etisalat and its push to expand its Middle East footprint. The takeover would have been a gamechanger for the telco sector, according to Lindsey McDonald, a consultant in the information and communication technologies practice for Middle-East & North Africa at Frost & Sullivan. “Before this deal, you had Etisalat and Zain as the largest operators in the Middle East, then Qtel and Batelco. But this may have meant that Etisalat was the Middle East and North Africa telco company,” says McDonald. “And in this sense, it changes the dynamic of the region and means that Zain will have to change its agenda, and start thinking more as a Middle East operator rather than a company with an emerging markets focus.” Etisalat, the Middle East’s largest operator by market capitalisation, has a long-term ambition to be a top 10 global operator and is now likely to look increasingly further afield for acquisitions. In the Middle East, Etisalat owns a 25 per cent stake in Saudi Arabia’s Mobily and has the Egypt unit Etisalat Misr. Rejecting the Zain deal, and most recently the Syria license opportunity, has split opinion on Etisalat. Some say
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winning the licence would have given Etisalat greenfield growth in a Middle East market, plus now the Zain deal is dead there are few obvious acquisition opportunities for the UAE firm, with most operators government-controlled. Other analysts say it reflects well on Etisalat because the company is showing discipline in its expansion strategy, sending a good signal to shareholders. Before long though, telco operators will be judged on what deals they do rather than ones they don’t. Most troubling will be that the current unrest shows no signs of easing, something that provides a grim backdrop for economic growth in the region. The propensity of Gulf telco firms, especially Etisalat, to emerge bigger and stronger from the current turmoil could decide their ambitions of becoming a truly global operator.
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