KUWAIT CITY, March 22, (RTRS): Kuwaiti telecom firm Zain is likely to dig deeper into the Middle East countries where it is already present rather than acquire elsewhere as it prepares to pocket $9 billion by selling its African assets. Zain has left investors guessing how it will spend proceeds from the deal with India’s Bharti Airtel, which it says amount to $5 billion after it pays down about $4 billion in debt. Analysts say Zain will face a tough time expanding in its home market the Middle East — competition is stiff, acquisitions are pricey, and there are few licenses on offer. It could opt to invest in better technology, networks and services where it already operates, and perhaps, pay out a special dividend.

Bharti, India’s top telecoms firm, said on Sunday it had tied up the financing needed to buy Zain’s African assets, in a sign of progress as the deadline for talks next week approaches. Zain’s new chief executive, Nabil bin Salama, has said he sees “great growth opportunities” in countries Zain already operates in such as Iraq, Saudi Arabia and Sudan, and it remains open to new investments. Marc Hammoud, telecoms analyst at Credit Agricole Cheuvreux, said the sale of the African assets except for Sudan and Morocco will improve Zain’s profitability, but a lot needs to be done to enhance value from the existing subscriber base.

New services such as 3G and multimedia and mobile banking, need to be introduced, he said.
“So it doesn’t mean that success is guaranteed. They still need to put a lot of effort in making sure they are succeeding in all the markets they are operating in the Middle East,” he said.
Morgan Stanley analyst Sean Gardiner said that pursuing a value enhancing strategy was easier than trying to acquire companies.
“The problem in the emerging mobile market for the last five years has been willing sellers at unreasonable valuations and I don’t think that is going to change,” Gardiner said.
Most of Zain’s returns come from the company’s assets in the Gulf and the Middle East where it has over 31 million subscribers in seven Arab countries.
Sleiman Aboul Hosn, senior investment analyst at Prime Holding, believes Zain should concentrate on its current businesses.

“There might be need for....further infrastructure investments in Saudi Arabia, Iraq and Kuwait,” he said.
One option would be to give shareholders a special payout from the funds.
Hammoud said Zain could afford to do this, given the fact that its net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio after the deal would be an acceptable 1.9 times.
Other regional players are in acquisition mode already, illustrated by Etisalat’s push to buy a majority stake in Iraq’s Korek Telecom as it looks to double revenues from overseas operations in three years.
Saudi Telecom (STC) acquired Bahrain’s third mobile license for $230 million in 2009, and it plans to start operations soon.

Despite the challenges, if Zain were to pursue expansion beyond its core markets, its chief executive, who took over from Saad al-Barrak, the man behind the firm’s earlier expansion spree, hasn’t specified where exactly that would be. Gardiner saw bidding for the Iranian third license as a good opportunity to expand beyond Zain’s core markets. “Palestine will probably come back at some stage this year as an acquisition opportunity,” he added. Paltel, the Palestine Telecommunication Co, last year called off a deal for Zain to buy a majority in the company. Paltel has around 1.5 million mobile telephone users and operates in the West Bank and Gaza Strip.