Shareholders of Zain, the regional mobile operator, will vote at the end of the month on a proposal that would open the door to the sale of a stake in the company. A special shareholder meeting, announced yesterday, will consider the removal of a clause in the company's regulations prohibiting a single shareholder from acquiring more than 2 per cent of the company.
The move is intended to allow a strategic investor, most likely a telecommunications company, to buy a substantial stake in the company from its existing institutional investors, analysts said. Zain's largest investor is the Kuwait Investment Authority (KIA), a sovereign wealth fund, and its second largest is the family-owned Kharafi Group of Kuwait. Zain, which operates mobile networks in 23 countries in the Middle East and Africa, has publicly announced its intention to sell its assets in sub-Saharan Africa, and is in an advanced stage of negotiations with a number of companies regarding the sale.
But yesterday's announcement suggests it is also considering selling a stake in the parent company. "The KIA seems open to selling its stake, and there have been some expressions of interest from strategic investors," said Irfan Ellam, the vice president of research at Al Mal Capital. Zain did not respond to requests for comment. Last month, Etisalat's head of international investments said the company would like to acquire a majority stake in Zain, in comments that were quickly played down by others in the company's management team.
"We did not present any proposal or bid to acquire a stake in Zain or any of its assets in Africa," its chairman, Mohammed Omran, said at the time. "We also did not negotiate nor discuss any of these issues with Zain officials." Yesterday, Etisalat declined to comment in response to Zain's announcement. Shares in Zain, which are traded on the Kuwait Stock Exchange, have risen and fallen sharply in recent months after a series of rumours regarding potential merger and acquisition activity. They rose by more than 7 per cent last Tuesday after rumours of the special shareholder vote made their way through Kuwait's tight-knit investment community.
The stock is now trading at a considerable premium to its fair value, Mr Allam said, suggesting that any big investment at current prices was likely to come from an investor with a strategic interest in the regional market. "It would not make sense for a financial investor at this level. It would have to be a strategic investor," Mr Allam said. "The stock is already trading close to the premium that a strategic investor would pay for management control."
Shuaa Capital recently downgraded its outlook for Zain stock, expressing concerns that its premium prices no longer matched the risk profile of a company doing business in markets across sub-Saharan Africa. Shuaa also said that individual shareholders could be left in the cold by a strategic investor doing a private deal with the KIA or the Kharafi Group, offering a premium price that would not be extended to regular investors.