Zain picks UBS to sell Saudi unit; shareholder threatens legal action to derail Etisalat deal

6 Dec 2010

Kuwaiti telecoms firm Zain Group has appointed Switzerland-based financial service provider UBS to sell its Zain Saudi Arabia unit. The Swiss company specialises in asset management and investment banking. The sale of the Saudi Arabian cellco – in which Zain holds a 25% stake, valued at USD756 million according to current prices – has arisen following UAE-based Emirates Telecommunications Company’s (Etisalat’s) non-binding offer worth around USD12 billion for a 46% stake in Zain Group. Etisalat already owns a controlling stake in Saudi’s second-placed mobile operator Mobily and its broadband unit Bayanat Al-Oula, so any transaction for Zain’s local assets would contravene local anti-monopoly regulations. Recent rumours suggest that both Bahrain Telecommunications (Batelco) and South Africa’s MTN Group are in talks to buy the unit, although neither company has confirmed their involvement thus far. In October 2010 Qatar Telecom (QTel) was linked with Zain Saudi Arabia, although its interest appears to have fallen by the wayside.

In related news, Zain shareholder Al Fawares Holding – which holds a 4.5% stake in the Kuwaiti telecoms group – has threatened to sue potential buyers of the firm’s Saudi unit in an attempt to block the ongoing deal with Etisalat. On Sunday Al Fawares took out an advertisement in Kuwaiti daily al-Watan claiming that it will ask for Zain to be put into receivership unless the deal is made more transparent. The advertisement reads: ‘Al Fawares confirms that continued violations … on the assets of the company and the rights of the board of directors … might push Al Fawares or other shareholders to go to court and ask for placing the company into receivership unless things are done right, transparency is practiced and any attempts to sell Zain Saudi or any other asset of the company are halted’. However, it is believed that such a move would require Al Fawares to convince a court that the mooted transaction would endanger the company’s future, a notion that is unlikely to succeed. Al Fawares alleges that Zain’s board should not have opened its books to Etisalat without all board members seeing the offer first. The stakeholder has already filed a lawsuit to halt the due diligence in the planned sale, with a hearing set for this Wednesday. Etisalat has said any deal could fail if definitive transaction documents are not signed by 15 January 2011.

Saudi Arabia, Bahrain Telecommunications Company (Batelco), Etisalat UAE, MTN Group, Zain Group, Zain Saudi Arabia