Zain, Paltel merger called off

David George-Cosh

• Last Updated: November 22. 2009 9:03PM UAE / November 22. 2009 5:03PM GMT

Zain, the Kuwaiti telecommunications operator, says its deal with Palestine Telecommunications (Paltel) has been cancelled.

While Zain cited failure to obtain government approval, there is confusion whether that approval was denied by the Jordanian finance ministry or by Palestinian authorities.

The deal between Zain and Paltel, announced in May, would have created a new entity giving Paltel shareholders ownership of Zain’s wholly owned Jordanian subsidiary, while Zain would have gained a 56.5 per cent stake in Paltel.

The announcement surprised analysts, who had long assumed that the merger, the largest in Palestine’s history, would be approved after Paltel had contributed to Zain’s past two quarterly results.

“Zain management confirms that the merger agreement between Zain and Paltel announced earlier this year will not take place, because Zain did not receive the required government approvals that were a condition [before] concluding the deal,” Zain said.

Samir Heleila, a Paltel board member, told the Palestinian news agency Ma’an that the dispute was based on conditions the Jordanian finance ministry had set for Zain and a refusal by Mahmoud Abbas, the president of the Palestinian National Authority, to approve the deal.

The merger was expected to generate more than US$1 billion (Dh3.67bn) in annual revenues and an estimated $300 million in net income this year, Zain executives said.

Paltel owns and operates Jawwal, a mobile network with more than 1.5 million subscribers in the West Bank and Gaza Strip.

“It came as a complete surprise,” said Irfan Ellam, the telecoms analyst for Al Mal Capital. “The market thought it was a done deal.

“Although Zain haven’t said which government was supposed to give its permissions, either the Palestinians or Jordanians, the failed deal is too small to have a material impact. In reality, it’s not going to affect them at all.”

Simon Simonian, the telecoms analyst for Shuaa Capital, said Zain had already consolidated Paltel’s earnings partially in its second-quarter results and wholly in its third-quarter results.

Paltel’s monopoly on the Palestinian telecoms market ended after Wataniya Mobile launched its service this month. The new firm is a joint venture between the Qatari operator Qtel and the Palestinian Investment Fund.

Qtel said it had spent about $250m and would invest an additional $700m over the next 10 years to help build and manage Wataniya’s network.

Mohammad Moustafa, the chief economic adviser for Mr Abbas, is the chairman of Wataniya’s Palestinian operations. Mr Moustafa is also the president of the Palestinian Investment Fund.

Shares of Zain rose more than 1 per cent to close yesterday’s session on the Kuwait Stock Exchange at 0.970 Kuwaiti dinar (Dh12,4).

dgeorgecosh@thenational.ae