GCC Telecoms companies are bucking global trends and raising billions via loans and sales of shares.
Du fights bears by raising billions
Telecommunications companies in the GCC are bucking the global trend of bearish money markets and raising billions of dollars via loans and sales of shares. Banks and shareholders are seeing little risk on the horizon for the sector. Yesterday, du, the UAE's second-largest mobile operator, finalised a Dh3 billion ($US11bn) syndicated loan at interest rates that most global businesses would struggle to find in this climate.
"If you look at a lot of other deals being done now in the market, we did very well," said Mark Shuttleworth, the chief financial officer of du. "We are very happy with the result." Mr Shuttleworth said du's debt burden would not affect profitability at the company, as interest charges would be associated with the cost of network infrastructure, which is slowly amortised over at least 20 years. The loan to du was offered at an interest rate of 125 base points above the London interbank offered rate (Libor). The gap between the Libor and a loan rate typically signifies how risky investors consider the loan to be. For example, when the Belgian brewing business, InBev, sought a loan to acquire Anheuser-Busch, America's largest brewer, it was offered a loan at 175 points above Libor, reflecting an assumption of increased risk.
Meanwhile, Russia's state oil company, Rosneft, which secures its debt against the country's vast oil reserves, recently signed a loan at the same rate as du, a two-year-old start-up with less than 30 per cent of the only market in which it operates. Rosneft, like du, is a government-owned business, meaning that investors can view the debt of both companies as being largely backed by a sovereign treasury. Such backing helped Etisalat gain investment-grade credit ratings from major agencies last week.
While no agency has yet issued a credit rating to du, Mr Shuttleworth said he remained hopeful. "Is it something we would like to see happen in the future? Yes," he said. Mr Shuttleworth added that the current Dh3bn loan would meet the company's need for debt in the next few years. Orascom Telecom, the Egyptian operator that is owned by the telecommunications tycoon, Naguib Sawiris, recently launched a $2.5bn syndicated loan to refinance old debt and fund growth. The initial rate for the loan was 200 points above the Libor, but that rate can rise to 250 depending on how indebted the company remains.
Zain, the privately owned Kuwaiti operator that is expanding rapidly throughout Africa and the Middle East, will look to the stock market for funding next month. The company is selling $4.4bn of additional stock to raise money for continued growth. A company spokesman said Zain was "working with a mix of financing options, including debt and capital". In December, the company closed a $1.2bn Islamic loan; in May 2006, it secured a $4bn revolving credit facility.
Saad al Barrak, the chief executive at Zain, has said the company would launch a $5bn public flotation on a major European stock exchange next year. @Email:email@example.com