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Etisalat reveals Dh5bn in bond prospectus

Etisalat DB India has found itself in the middle of India's largest telecommunications scandal.

Etisalat has revealed more than Dh5.3 billion (US$1.44bn) of existing debt in advance of the company's issuance of $8bn in bonds to help it acquire the Kuwaiti telecoms operator Zain.

The operator revealed its total debt figures in a bond prospectus filed to the London Stock Exchange last week, along with key figures previously unavailable in the company's financial statements.

Etisalat has begun the due diligence process to acquire a 51 per cent stake in Zain in a deal worth about $11bn at 1.7 Kuwaiti dinars per share.

The deal is expected to close in the first quarter of next year and would make Etisalat one of the largest telecoms operators in the world.

The operator has launched a $7bn global medium-term bond issue and a $1bn sukuk and will be registered on the London Stock Exchange this year.

None of Etisalat's current debt is tied to its domestic operators. Of all its subsidiaries, Etisalat's Egypt business has the majority of its bank borrowings, with Dh2.18bn due within the next 12 months. Other subsidiaries that have significant portions of the company's debt include Zantel, with Dh244.4 million , and Atlantique Telecom, with Dh827.8m.

"[Etisalat] has maintained a conservative financial profile and low indebtedness levels, enabling it to maintain its domestic and international investment strategy and take advantage of opportunities to grow its business in the face of challenging global financial market and economic conditions," said the company in its prospectus.

Etisalat said it had not guaranteed the bank borrowings of any of its subsidiaries, associates or joint ventures. The UAE Government, which owns 60 per cent of Etisalat, has also said it will not guarantee any of the operator's financial obligations, although it may do so with an "explicit guarantee".

The company also stated that its ability to borrow funds could be affected by the UAE's reputation as a "centre of investment in the Middle East" after the restructuring of Dubai World and the downgrading of DP World's credit rating.

"A downgrade in Etisalat's credit ratings could adversely affect the group's ability to access the debt capital markets and may increase its borrowing costs," said the operator.

As the operator attempts to raise US$8 billion (Dh29.38bn) to fuel its international expansion plans, its Indian subsidiary could be in jeopardy after finding itself caught up in the country's biggest telecommunications scandal.

Etisalat DB India was among companies mentioned in a government report after a firm it purchased received spectrum licences from the telecommunications department that were significantly undervalued and did not follow policy procedures.

The report alleges that as much as $40bn of revenue was potentially lost by the department after spectrum was allocated to nine companies in an irregular manner and at discounted prices in 2008.

Etisalat acquired a 45 per cent stake in Swan Telecom for $900 million in March last year in a deal that included management control. The remaining 55 per cent is held by two Indian companies, Dynamix Balwas Group and Genex Exim.

Andimuthu Raja, the Indian minister of communications and information technology, resigned on Monday after the report was released.

Media reports suggest the Indian telecoms regulator could force Etisalat to pay a penalty or relinquish some or all of its licences to operate in the country .

Etisalat DB India operates in 15 Indian districts and has more than 40,000 subscribers under the Cheers Mobile brand since services were launched last April.

"We have reviewed about 127 licences and have recommended that some licences may be cancelled on the issue of non-roll out of services and some for improper roll-out of services, so that the spectrum can be utilised," a government official told Dow Jones.

However, a telecoms analyst in India who declined to be named said it was unlikely that telecoms operators would be penalised by the Indian government.

"Etisalat has basically nothing to do with what went wrong [with Swan Telecom] because they didn't own anything at that point in time," said the analyst.

"There is a lot of uncertainty in the market about these things but it is also likely that the matter will die down."

Etisalat declined to comment.



Reversing the charges, b4

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