x Abu Dhabi, UAEThursday 27 July 2017

Etisalat talks over foreign ownership of its shares

Shares in Etisalat rise sharply after the telecommunications company confirmed it was in talks with the Government about lifting a ban on foreign ownership of its stock.

Etisalat, which is 60 per cent owned by the federal Government, believes there are advantages to foreign ownership. Sarah Dea / The National
Etisalat, which is 60 per cent owned by the federal Government, believes there are advantages to foreign ownership. Sarah Dea / The National

Shares in Etisalat rose sharply yesterday after the telecommunications company confirmed it was in talks with the Government about lifting a ban on foreign ownership of its stock.

The Abu-Dhabi listed group said foreign ownership would boost competition in the sector as shares in the company rose 1.41 per cent to close at Dh9.35.

"Etisalat Group is currently in discussion with the United Arab Emirates Government with regards to foreign ownership and trading," Ahmad Abdulkarim Julfar, the group chief executive of Etisalat said.

The company declined to give any indication of when it believed the talks with the Government would reach a conclusion but Mr Julfar told Al Khaleej newspaper he expected the foreign ownership ban to be lifted "soon".

According to the Abu Dhabi Securities Exchange, foreign ownership is not currently permitted in 15 other listed companies, including the Abu Dhabi energy company Taqa, National Bank of Fujairah and Arkan Building Materials.

Etisalat, which is 60 per cent owned by the federal Government, believes there are advantages to foreign ownership. Mr Julfar said the company had provided "recommendations to the Government and the Emirates Investment Authority" on the matter.

"Etisalat believes opening the door for foreign ownership provides a more competitive business environment and allows for the further development of the telecommunications sector," he said.

Matthew Reed, a senior analyst at Informa Telecoms & Media in Dubai, said Etisalat was in favour of foreign ownership because the company believed it would improve liquidity and corporate governance.

"The UAE Government has the final say on the matter but might be - or perhaps already has been - convinced by those arguments," he said.

Other analysts cast doubt over how foreign ownership could improve competition among companies such as Etisalat.

"I think allowing foreign ownership of Emirati stocks is a step in the right direction in order to level the playing field for all investors but I'm failing to see how it will promote 'a more competitive business environment'," said Petr Molik, the head of the research division at Mena Corp.

He said dropping the ban on outside investors would be likely to boost trading volume and, possibly, the price of Etisalat's stock.

But foreign investors would be unlikely to have much sway on the company's decisions, he added. Mr Molik said that meant the Government was likely to keep its stake in the company.

"I do not see any near-term possibility for the state to sell a minority stake in Etisalat to a foreign telecom," he said. "That would help with group restructuring and then better competing with du on the local market."

Ibrahim Masood, a senior investment officer for asset management at Mashreq, said relaxing laws on foreign ownership could help the UAE's case in being upgraded to MSCI emerging market status.

"Restrictions on foreign ownership always tend to be a sticking point for offshore institutional investors and any moves to relax these are generally seen as being investor friendly steps," said Mr Masood.

Etisalat on Wednesday reported a turnaround in its financial performance having posted a net profit of Dh1.9 billion (US$517.2 million) in the second quarter after months of decline. The company said its net profit had risen by 17 per cent with revenues up 4 per cent to reach Dh8.25bn in the second quarter of this year.

bflanagan@thenational.ae