Zain has agreed on the outlines of a deal to sell its operations in Saudi Arabia to a regional consortium.
The telecommunications group listed in Kuwait said yesterday it had "signed a non-binding term sheet" over the sale of its 25 per cent stake in Zain Saudi Arabia to Kingdom Holding and Batelco.
A possible divestment of Zain's equity stake in Zain Saudi Arabia emerged during Etisalat's unsuccessful attempt to acquire a majority stake in Zain for US$12 billion (Dh44.07bn).
A precondition of the Zain buyout was the sale of the Kuwaiti company's Saudi business, as Etisalat already operates in Saudi Arabia.
Despite the failure of the bid, the sale of the stake in Zain Saudi Arabia was progressing, analysts said.
"The deal is obviously moving in the right direction," said Irfan Ellam, of Al Mal Capital in Dubai.
Kingdom Holding is an investment company controlled by the Saudi billionaire Prince Alwaleed bin Talal bin Abdulaziz Al Saud, which does not currently have other telecoms operations.
But a sale of the Zain Saudi stake to Kingdom Holding and the Bahraini telecoms operator Batelco still "makes sense", Mr Ellam said.
"Kingdom Holding is a good fit because they know the Saudi business landscape and have influence through Prince Alwaleed. What Kingdom doesn't have is [telecoms] experience, which is where Batelco comes in," he said.
"They [Zain Saudi] need to restructure the balance sheet, raise more equity and potentially reduce debt."
The Kuwaiti bourse yesterday halted trading in Zain shares, pending clarification of reports concerning the signing of the agreement.
Zain later confirmed the agreement in a statement on its website.
Zain's ordinary and extraordinary meeting next Tuesday will be key to the fate of the Saudi Arabia deal and the future of the group.
Analysts expect a shake-up of the Zain board, which is at odds over the ownership of the company.
Mr Ellam said the board was divided into two groups - those who called for a sale of the company to Etisalat, and those who wanted the company to remain independent.