x Abu Dhabi, UAEMonday 22 January 2018

Troubled Zain's future in limbo

The Kuwaiti mobile phone success story has been put on hold by a stalled takeover attempt led by an ambitious Indian company and now, with the departure of its hard-nosed chief Saad al Barrak, a leadership vacuum emerges at the telecoms operator.

Saad al Barak, the former chief executive of Zain, made the company a regional powerhouse by investing more than $12 billion.
Saad al Barak, the former chief executive of Zain, made the company a regional powerhouse by investing more than $12 billion.

The Gulf's first mobile phone company now appears to be at its most troubled, with a leadership vacuum and a problematic takeover attempt hanging over the future of Zain.

Founded as the Mobile Telecommunications Company of Kuwait in 1983, the first 20 years of Zain's existence were a relatively sleepy period, punctuated by Iraq's invasion in 1990 and the launch of one of the region's first GSM mobile networks just four years later. By the time its transformative, and now departed, chief executive, Saad al Barrak, took the reins in 2002, the company had a little more than 600,000 customers, all of them in Kuwait.

That was soon to change. The company doubled its customer base overnight with the US$425 million (Dh1.56 billion) acquisition of Fastlink, a Jordanian mobile network. At the time, the deal was the largest telecoms acquisition in the region, and the largest ever private sector investment in Jordan. It was also an early spark for the fire of telecoms investment in the region over the next five years. Zain would go on to invest more than $12bn buying its way into 22 markets in the Middle East and Africa, spurring a land-grab phase that was happily joined by its Gulf peers.

Investors were happy to fund the shopping spree, injecting $4.5bn into the company through a rights issue that closed in September 2008, in the same week as the collapse of Lehman Brothers. Response to the rights issue was "a unanimous vote of confidence by our shareholders in Zain's management team, the performance to date and in our profitable expansion strategy," Dr al Barrak said at the time.

Much of that confidence came through the high regard in which Dr al Barrak was held within the industry. Last year, Global Telecoms Business, a trade magazine, ranked him as the 20th-most influential chief executive in the industry; in the same year a poll of its readers named him among the 100 most important telecoms chief executives of all time. Current and former colleagues, none of whom wanted to be named while sensitivities surrounding his departure from the firm remained high, hit on common themes when discussing his management style. He was blunt and to the point, demanded the best of his lieutenants and loved to be surrounded by the best and brightest.

His freewheeling conversational style could charm and inspire, but would occasionally land him in hot water with the more conservative old guard of Kuwaiti and Gulf business. "I wish they would leave tomorrow, and I am working on this," he said of his largest shareholder, the Kuwait Investment Authority, at a conference last year. "There will be peace with Israel before there is an independent regulator in Kuwait," he once said in a magazine interview.

"You would never have a dull day around him," said one industry executive. "There's not so many people you could say that about in this business." His resignation, announced on Wednesday last week, marked the end of more than eight months of uncertainty over the future of the company, and his leadership. The period began last June, when news emerged that Zain would seek to sell its African mobile networks - the crown jewels of its multibillion-dollar empire.

The sale process was part of a strategic review, undertaken by Dr al Barrak and advised by the investment bank UBS, which sought to find suitable bidders for the company's networks in sub-Saharan Africa. For a chief executive who made his name through rapid expansion across the continent, such a dramatic downsizing of the business came as a surprise to many. Zain then called an extraordinary shareholders meeting to vote on a proposal to remove individual ownership restrictions on its shares. The move was widely interpreted as a step towards selling a stake in the company to an outside investor. It suggested more than one avenue was being sought to raise cash by selling the company's assets or equity.

Whether potential buyers on one side of the equation were aware of simultaneous sale talks taking place on the other remains an open question. Soon after Vivendi, the French conglomerate, pulled out of discussions on buying the company's African networks, the Kharafi Group, a Kuwaiti family company that is Zain's second major institutional investor, said it had struck a deal to sell a controlling stake in the entire business. Dr al Barrak may well have been trying to sell some assets of a company that was itself in the process of being sold by one of its shareholders.

The exact size of Kharafi's ownership of Zain remains another mystery. Kuwait's practically unregulated stock market does not require investors to disclose their total holdings in a company, including shares controlled by related parties. Kharafi's declared stake in Zain is about 11 per cent, but company watchers speculate that it may own more than 25 per cent of Zain's shares through its affiliates and subsidiaries.

Last September, Kharafi appealed to Zain's smaller shareholders to join the company in forming a selling consortium that would assemble a 46 per cent controlling stake in the business and sell it to an Indian-led group of buyers. That sale, like much of the company's future as an aspiring global operator, now hangs in the balance. No major investor has publicly committed to joining the purchasing consortium, which is being led by the Vavasi Group, a low-profile technology company based in New Delhi.

In the past decade, Vavasi has announced a number of multibillion-dollar projects, including a pan-Indian mobile network, an advanced silicon manufacturing facility and an aircraft manufacturing joint venture. None has materialised. None of the three major investors initially linked to the acquisition - two Indian state-owned telecoms and the Malaysian billionaire Syed Mokhtar al Bukhary - has publicly announced their participation in the deal. Kharafi recently said the sale, first said to be concluded by the end of last month, will take longer than expected.

Business Monitor International, a research group, believes it is more likely that Zain's assets will be sold off piece by piece. There is no shortage of aspiring regional players on the continent, with South Africa's MTN and Egypt's Orascom Telecom both actively looking for acquisitions. But such a sale would probably dismantle one of Dr al Barrak's greatest legacies, Zain's "One Network" system, which unified its networks across the continent. Zain customers can roam across its 16 African networks as if they are a single, borderless operation, using local recharge cards wherever they go and paying a single flat rate for calls. The system has been hailed as a major innovation for regional operators, and has spawned a number of imitators. Zain's One Network being dismantled into many networks would be the most visible sign that the house Dr al Barrak built is under new owners, with a markedly different vision for its future.

Orascom Orascom Telecom's US$800 million (Dh2.93 billion) rights issue will close by the end of next week, the company has announced. The rights issue is a move to raise cash to shore up its troubled balance sheet and prepare for a tax bill in Algeria that could reach up to $600m. The company has disputed claims by the Algerian government that it owes this much. Until the dispute is resolved, it is unable to send hundreds of millions of dollars in profits from Algeria back to its Egyptian headquarters. And on Saturday, an Egyptian court will issue a decision central to the company's future in Egypt, its home market. France Telecom, its joint-venture partner in the Mobinil network, Egypt's largest, is attempting to take control of the company. The attempt has previously been blocked by local courts. Etisalat Etisalat has dropped out of the race to privatise Nigerian Telecommunications (Nitel), which is owned by the government of Nigeria. The UAE national carrier, which launched its Nigerian mobile network last year, had been among the 14 local and international companies that expressed interest in the stalled privatisation process. But of those 14, only six submitted the required technical and financial proposals by the deadline last Friday. These included two of the country's major mobile operators, MTN and Globacom, but not Etisalat. Nitel's assets include a national fibre-optic internet backbone, a fixed-line phone network and a submarine-cable division. Analysts say each would be useful additions to a mobile operator looking to enter the country's booming market for broadband internet. Warid The Warid mobile network in Bangladesh will be renamed Airtel after its sale by Abu Dhabi's Warid Telecom. Warid, which has begun exiting its telecoms investments in Africa and Asia, sold a 70 per cent stake in the network to India's Bharti Airtel. In Africa, it has formed a partnership with Essar of India to run and expand its networks. Since launching the Bangladeshi network in 2007, Warid has signed up more than 3 million subscribers, but said recently that it would need to join with a new investor to grow the company beyond its current fourth-place position. Bharti has committed to investing more than $100m in expanding the network, the country's telecoms regulator said. The Bangladeshi mobile market has boomed in recent years. @Email:tgara@thenational.ae