x Abu Dhabi, UAETuesday 23 January 2018

Shareholders should win out on Zain deal

What's up Asset sale. African mobile networks could fetch as much as $5bn.

Since losing its chief executive Saad al Barrak almost two weeks ago, Zain's future has been unclear. Today the outlook is significantly brighter, at least for current shareholders. The owners of Kuwait's largest public company are understandably tantalised by the prospect of pocketing about US$5 billion (Dh18.36bn), which is the price analysts say India's Bharti Airtel is willing to pay to acquire a majority stake in the company's African mobile networks.

Zain's board of directors yesterday unanimously approved an offer by Bharti, although the company has yet to disclose specifics of the deal. The African unit is valued as a whole at $10.7bn. Based on assumptions about the size of the stake being sold and the kind of dividend Zain is likely to return to shareholders, Simon Simonian, an analyst with Shuaa Capital, now thinks the company's stock is undervalued by 18 per cent.

But it is not certain how bargain shoppers will be able to take advantage of the discount. Zain shares have been trading in very low volumes for months, in part because the Kharafi Group, Zain's largest private shareholder, has been busy putting together a consortium of small shareholders. The idea was to assemble a 46 per cent stake in the company and then sell it to an Indian-led group. Kharafi told small shareholders joining the consortium that a condition of membership was they must not trade any of their shares until the deal was finalised.

The would-be buyers never seemed to have the money or the backing to pull off the deal, but that didn't stop it from casting a shadow over Zain for five long months. It is possible that shadow could finally lift if Zain's board provides more clarity on what it has been offered for its African assets and how the board plans on dealing with a multibillion-dollar cash windfall. If, as expected, Zain opts to dole out most of the cash in dividends rather than use it for further expansion, it could spur those small shareholders to flee the consortium and cash in. That could also create value for buyers looking for healthy dividends.

At the same time, it would almost surely represent the beginning of the end of Zain as a long-term growth stock and as a top global operator. @Email:tgara@thenational.ae