x Abu Dhabi, UAESaturday 20 January 2018

MENA telecoms deals set to rise over next two years

The telecommunications sector will see more mergers and acquisitions over the next two years, says investment bank CI Capital.

The telecommunications sector will enjoy a rise in the number of mergers and acquisitions over the next two years, says an investment bank based in Cairo.

Local operators across the MENA region are expected to attract interest from buyers beyond the region, and expand into international markets, CI Capital said yesterday.

"In our opinion … regional integrated players are likely to pursue expansion by targeting smaller, often local, operators," it said, adding that the "MENA telecoms markets [is] ripe for more M&A [mergers and acquisition] action over the coming two years."

Etisalat, the biggest telecoms company by market capitalisation in the UAE, Orascom Telecom and Qatar Telecom were cited as potential buyers, while Zain, Vodafone Egypt, and Korek Telecom in Iraq have been highlighted as possible buyers.

The bank said some MENA region markets would remain relatively under-penetrated for telecoms operators to the end of this year, including Sudan, which has just 34 per cent penetration, Syria with 44 per cent and Iraq with 62 per cent.

CI Capital that said because there only a limited number of licences were issued by local telecoms regulators within their sovereign states, operators had been "left with no choice" but to acquire existing operators to gain access to markets.

But analysts said consolidation might not be necessary in markets that already had enough telecoms companies.

"Theoretically, it makes sense but in practice the market is big enough to support existing companies," said Farouk Miah, an equity research analyst at NCB Capital in Saudi Arabia.

The three main telecoms operators in the GCC are Etisalat, Zain and Saudi Telecoms, but there are already two or three major operators in most Middle Eastern countries, suggesting each economy is large enough to support them all.

"I would see it actually going the other way round," Mr Miah said, citing Syria, which has two operators but plans to sell a third licence to create more competition in its market.

"In practice, the telecoms market is big enough to support existing companies. It doesn't make sense to have fewer companies unless you are talking about India, where there are 12 telecoms operators and the small ones can't survive," Mr Miah said.

He said telecoms was a "very capital-intensive business" and smaller companies struggled to survive when profit margins were limited.