Buyers and sellers cool to telecom investing

Oman's decision to cancel the sale of a stake in its national telecommunications company reflects a growing caution among buyers and sellers towards Middle Eastern telecoms assets, analysts say. The cancellation is not a first for the region. In September, following multiple delays, the government of Egypt cancelled the sale of the country's second fixed-line telecoms licence. Last week, it announced it would no longer release a second tranche of shares in Telecom Egypt, the national fixed-line monopoly. The share sale, previously expected in the first half of 2009, was postponed indefinitely.

The winner of Bahrain's third mobile licence was due to be announced early this month, following a lengthy application and selection process. Alan Horne, the director general of Bahrain's Telecommunications Regulatory Authority (TRA), said the bid deadlines had been pushed to Jan 11, and the regulator was still expecting bids from the four companies it had shortlisted. Oman's largest telecoms company was worth almost 1.8 billion Omani riyals (Dh17.17bn) when the government announced the sale of a 25 per cent stake to a foreign strategic investor in July. The company is now worth almost a third less; on Monday, the government cancelled the sale, citing "unprecedented market volatility".

"The decision certainly did not come as a total surprise," said Kunal Bajaj, an analyst at HSBC in Dubai. "It is fairly clear that big-ticket privatisations and new licences will take a back seat until the markets start to pick up again." The value of other major telecoms deals - such as the rumoured acquisitions by Etisalat of Iran's third mobile licence and the Iraqi mobile operator, Korek - is also believed to have been pushed downwards.

The government of Lebanon said this week that it had paused the privatisation of its telecoms industry, with the financial crisis putting a halt to a process that was already delayed by political infighting. At the top of the market in 2006-2007, governments profited handsomely from the sale of telecoms assets. In 2006, Etisalat paid almost US$3bn (Dh11.01bn) for Egypt's third mobile licence, while the Kuwaiti operator, Zain, paid more than double this to become Saudi Arabia's third operator.

"What we are seeing now is a short-term readjustment," said Ghassan Hasbani, a vice president and partner who specialises in telecoms at the management consultancy, Booz & Co. "People have to get used to more realistic premiums - some very high premiums were being paid in this region, and the time of those kind of valuations is over." While telecoms assets are no longer seen as the safe haven they once were, Mr Hasbani still believes the fundamentals of the industry make it a reliable base for investment in tough times.

"You see a lot of executives and decision makers being influenced by messages in the media and markets," he said. "But if you look historically, telecommunications revenues have increased after every crisis since the 1970s. In tough times people tend to talk more, use telecommunications more. When they cut down on travel, on going out, on entertainment, they spend more time on the internet and the phone."

Such sentiments are unlikely to help the short-term prospects for Omantel's share price. In a sector where most stocks have lost at least half their value, the company has been a relatively strong performer, with its share price dropping just 7 per cent year-on-year. But optimism surrounding the sale was a major pillar of this performance, leading many to fear a price correction when trading resumes at the Muscat Securities Market (MSM) on Sunday.

"There was certainly a premium being attached to the company because of the sale," said Sagar Patel, an analyst at Bank Muscat. "Now you could see much of that premium being removed." A sell-off will hit the benchmark MSM 30 Index hard, with Omantel accounting for 28 per cent of the index. Despite only a small drop by its leading company, the MSM 30 has fallen by 39 per cent year-on-year, and a decline in Omantel will drive further selling, analysts say.

tgara@thenational.ae