The likelihood of success for Etisalat's US$12 billion (Dh40.4bn) bid for a controlling stake in Zain grew more remote last night as a top executive and shareholder of the Kuwaiti company said the deal would not happen.
Etisalat offered to buy the 46 per cent stake in Zain for 1.7 dinars a share last September.
But one of the conditions of the deal was the sale by Zain of its Saudi Arabian unit. Zain rejected three bids for the unit on Sunday and no further offers are on the table.
Etisalat already operates in Saudi Arabia under the Mobily brand and acquiring Zain Saudi Arabia would not be allowed by the country's telecommunications regulators.
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Sheikh Khalifa Ali Al Sabah, a member of Zain's board of directors, a shareholder in the company and a member of Kuwait's ruling family, said the absence of a buyer meant the Etisalat deal could not proceed.
"I am convinced that the deal, as all the conditions that you're aware of, is not going to be met," said Sheikh Khalifa. "So it's over."
Mohammed Omran, the chairman of Etisalat, said last week that selling Zain Saudi was one of the main conditions that must be met for the deal to be completed.
Mr Omran added that another condition was to acquire the support of 46 per cent of Zain's shareholders. An Etisalat spokesman confirmed the terms and conditions of the deal have not changed since last week.
Zain has also set a deadline at the end of this month for Etisalat to complete due diligence and make a decision. Etisalat said it was still on track to complete the process.
Sheikh Khalifa, whose family also owns 4.5 per cent of Zain through the private equity company Al Fawares Holding, said the three offers for Zain Saudi were "unacceptable".
Bahrain Telecommunications Company (Batelco), the Riyadh Group and Kingdom Holding, the investment firm run by the Saudi billionaire Prince Alwaleed bin Talal bin Abdulaziz Al Saud, each submitted an offer to buy the 25 per cent stake in Zain Saudi Arabia its parent company owns.
"Batelco wanted to receive a five and seven-year extension on the [debt] facilities of Zain Saudi Arabia," said Sheikh Khalifa. "[But] without the support of the Zain group, it would be impossible. It would be hard for us to guarantee a facility for a unit that we will no longer own."
Zain guaranteed two short-term borrowing facilities for its Saudi Arabian business worth 438.8m riyals (Dh429.7m) and $468m riyals that are repayable this June, the company's financial records show.
Sheikh Khalifa said he aimed to restructure the company with a new board and management to be installed by June. He added the company planned to issue a dividend worth between 190 and 230 fils a share to shareholders this year.
Last year, Zain's shareholders approved a cash dividend of 170 fils a share.
"Zain is a cash cow, it generates a lot of cash," said Sheikh Khalifa. "Its debt situation is very attractive and I want to make sure that Zain is doing well and is properly managed.
"Our cash position is fabulous. We have treasury shares that we could use to offload if needed. It's just a very, very attractive company for investors."
Irfan Ellam, a telecoms analyst for Al Mal Capital, said Zain's shareholders would lose out if the deal with Etisalat does not go through.
"Would you want to own a share of a cash cow worth 1.3 dinars [a share] with a dividend, or would you rather take the 1.7 [dinars] now? I'd rather take the latter," said Mr Ellam.
But said issuing a dividend worth up to 230 fils a share should be viewed as a "positive" move to investors.
"What you've got now is a set of operations that have much lower growth prospects than the African operations that they used to own," said Mr Ellam.
"There's only a certain amount of investment that you can make in these operations, so the return of cash to shareholders is positive."
Kuwait's Kharafi Group, which is the second-largest shareholder in Zain and led the deal to sell the operator to Etisalat, declined to comment.
Last month it was revealed a brokerage firm majority-owned by Kharafi stood to earn 98.8 million dinars (Dh1.23bn) in commission fees if the sale of Zain to Etisalat was completed.