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Orascom Telecom sells Iraqna to Kuwaiti Zain
Published in Daily News Egypt on 02 - 12 - 2007

CAIRO: Orascom Telecom quit its operations in Iraq and sold its Iraqi mobile phone operator Iraqna for $1.2 billion to Kuwait's Mobile Telecommunications Co (Zain), allowing the Egyptian operator to pull out of the war-ridden country. MTC-Atheer - Zain's subsidiary - will pay 50 percent of the total deal value on the first anniversary of completion of the transaction. Six months later, MTC-Atheer will deliver a promissory note for the remaining 50 percent due on the second anniversary. Payments are fully guaranteed by Zain, and completion of the transaction is expected to take place before the end of the year."In our last report, we had an estimated fair value for the Iraqi unit at $1.16 billion, implying that OTH [Orascom Telecom Holding] has not sold its Iraqi unit on a discount. We believe that . margins should improve given that security costs in Iraq had always weighed down the overall performance of OTH, Beltone Financial commented on the deal. "However, with the exclusion of the Iraqi operations, OTH may become more expensive as far as price multiples are concerned, starting from 2008, unless the company is successful with its share buy-back program, which should help partially offset the negative impact of no longer owning Iraq's consolidated operations. Orascom - the fourth largest Arab telecom firm by market value - was the first company awarded license to build and operate central Iraq's commercial mobile telecommunications network in December 2003, dubbed Iraqna. A year later, Iraqna's license became a nationwide license, allowing Orascom to expand its network and offer services throughout Iraq.
Orascom, which set up one of three mobile phone networks in Iraq after the US-led invasion in 2003, invested more than $360 million in its GSM mobile network in Iraq. According to Orascom Telecom figures, Iraqna has more than three million subscribers, capturing 34 percent of Iraq's mobile market share.
The company, however, experienced difficulties resuming its Iraqi operations after pulling out of an auction this year to secure a long-term license to continue operations in the country. Orascom was then forced to tie up with Iraqi Kurdish operator Korek Telecom to only find more trouble, as both companies were not able to reach an agreement prior to the interim license expiry date.
Our alliance with Korek did not work, and the only alternative we had was to sell, Naguib Sawiris, chairman and CEO of Orascom Telecom, told Dubai-based Al Arabiya television on Saturday.
"We have built a very successful and profitable operation in Iraq, despite a very difficult operating environment, Sawiris said in a press statement. "Following the auction for the long-term license, potential returns of Iraqna did not satisfy our targeted return on equity for the associated high risks of operation, which would have entailed a further investment of $1.25 billion for the license payment. With this transaction [deal with Zain], we are achieving an excellent return on equity and further demonstrating Orascom Telecom's focus on enhancing shareholders' value even in difficult markets.
"Orascom Telecom, he added, "will continue to lead growth and development of mobile markets in Algeria, Egypt, Pakistan, Tunisia, and Bangladesh, to seek strategic investment opportunities in emerging markets, and to [maintain] its buy-back program.
Kuwaiti rival Zain secured last August one of Iraq's three 15-year nationwide mobile licenses for $1.25 billion. Via the new acquisition, Zain's MTC-Atheer will enjoy a combined customer base of around seven million subscribers in Iraq. Zain will own all Orascom s subsidiary Iraqna and combine the two units.
We are delighted that MTC-Atheer s acquisition of Iraqna will create one of the most dynamic and resourceful mobile telecoms companies in Iraq and in the region at large, Saad Al-Barrak, Zain CEO, said in a press statement.
According to the company, the new purchase will boost the firm s customer base to 43 million subscribers across 21 countries. Iraqna is the latest in a series of multi-billion-dollar acquisitions Zain recently made across different countries. This year Zain also won the third mobile license in Saudi Arabia for a whopping $6.1 billion due to start operations early next year. The Kuwaiti government owns a 24.6 percent stake in Zain, which enjoys a capitalization of some $25 billion.


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