Batelco plans $1.5-2bn acquisition

Bahrain Telecommunications Company (Batelco) continues to pursue its $1.5 billion to $2bn acquisition plans but would but would not over pay "just because they are strategic" assets, said the group chief executive of Bahrain's largest operator.

Peter Kaliaropoulos said they will look at acquiring a stake in Mobile Telecommunications Co. Saudi Arabia (Zain KSA) "if a stake becomes available because of the etisalat offer" but stressed that the deal must be financially viable.

"Batelco is not valuing companies in huge multiples just because they are strategic," he told reporters on the sideline of Telelcoms World Middle East conference on Tuesday. "Currently we have not had any direct discussions with either Zain or etisalat but we if you are a Middle Eastern telecom player, it is your responsibility to look at these things when new opportunity comes up. We are interested to make acquisition in Saudi if and when it makes sense for us."

To fund its acquisition plans, the company is looking at raising debt and is currently being advised by JPMorgan Chase & Co in getting a credit rating by the end of this year.

"We'll find a suitable opportunity first then agree on the deal in principle. At this stage there is no deal to be done but if we acquire companies within 6-12 months, we will have a bridging facility that will take us for the six to nine months and then we'll
go to market and raise debt almost a year later," he said.

With a yearly cash flow of BHD350mn and no debt on its balance sheet, Kaliaropoulos said raising debt is the "easiest thing to do" while finding an acquisition target at the right value is the toughest.

Batelco had earlier lost its bid for the third Saudi mobile licence in 2008 to Zain Saudi Arabia, which had paid $6bn for a licence to operate in the biggest Arab economy. Zain Saudi Arabia has since then been pressured by larger rivals Saudi Telecom and Mobily and plans to restructure its capital, cutting it by almost half to cover accumulated losses, and later launch a rights issue to raise it by nearly 60 per cent.

"The Saudi market is attractive to us," Kaliaropoulos said. "We had the opportunity to buy the third mobile license a few years ago when we looked at it as part of a consortium. We thought $6bn was far too high to pay for a third mobile licence."

In July, Batelco cancelled the acquisition of an additional 6.3 per cent stake in S Tel Limited from Siva Group, a INR1.3bn ($29m) deal which was agreed last year. The acquisiton was rejected by Foreign Investment Promotion Board. The Revenue Department has also rejected the proposal because the stake rise amounted to treaty shopping.

Batelco was also among foreign bidders for a stake in Morocco's No.2 telecoms firm Meditel. The deal was snatched by France Telecom (Orange), who acquired 40 per cent share.

"We looked at Meditel, it was a lot of interest for us but it broke down in terms of value creation. Orange Telecom paid a very good multiple for the.  We are not prepared to pay the same multiples," Kaliaropoulos said.

Despite a number of unsuccessful bids, Kaliaropoulos is hopeful that they would be able to get good deals over the next six to 12 months in the Middle East, Africa and  ndia/Asia Pacific regions. He said the company has strong appetite on acquiring shares from established companies.

"You will need to pay a premium...but breaking even and delivering dividends is quicker," he said.

Wasim Khan, Mena telecom leader at Ernst & Young, said telecom operators are likely to acquire existing operations than invest heavily on Greenfield deals. In Saudi for instance, he said an acquisition is much better because infrastructure, alliance and the
regulatory framework are all in place.

"Whether it is etisalat or whoever, it cannot go wrong because you still have huge amount of penetration and value added services that you cal look into," Khan said. "The idea for any operator to consider stepping into the Saudi market, not as a fourth operator but an existing third operator, is viable."

Batelco, founded in 1981 in Manama, is losing market share in its home market Bahrain due to increased competition and is looking to grow its revenue from operations abroad. The company in July said its full-year net profit to be lower than BHD100m, due to
increased competition in Bahrain.

For the first half of this year, the company reported a decline of 20 per cent in its net profits. The company posted a net profit of BHD 46.7m against BHD54.2m in the first half of 2009 while gross revenues were BHD170.7m against BHD170.6m for same period a year ago. Operating profit for the period was BHD 54.1m was down 4 per cent on last year.

As of December 31, 2009, it served approximately 5.1m mobile subscribers and 200,000 broadband customers. The company also has operations in Bahrain, Jordan, Kuwait, Yemen, Saudi Arabia, and India.  

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