UAE (Dubai) - Fitch Ratings says that Emirates Telecommunications Corporation's (Etisalat) non-binding offer to acquire a 46% stake in Zain, if realised, should not
have a significant impact on the rating profile of the company. Etisalat currently has a Long-term foreign currency Issuer Default Rating (IDR) of 'A+' with a Stable Outlook, reports Global Arab Network according to press release.
Etisalat has submitted a preliminary conditional offer to buy a stake in Zain, a leading MENA telecoms player operating in seven countries in the Middle East, serving over 34.2 million active customers at H110. Fitch understands that Etisalat offered to buy a 46% stake in Zain for just under USD12bn; The closing of this offer is dependent on the outcome of the due diligence process and the fulfilment of certain requirements and conditions necessary to finalize the deal.
Fitch recognises that this offer is non-binding, could take many months to close, if it closes at all, and that many aspects of the transaction, including its funding, remain undetermined. Fitch expects that the company's management will still maintain a conservative financial policy even after such a sizeable transaction, with a maximum gross debt/EBITDA of 2.5x, and that the enlarged company will continue to generate more than 60% of group EBITDA from the local UAE market by 2012-13. Consequently, there is room in the rating for a sizeable transaction such as this.
Fitch believes the Zain mobile portfolio in particular would enhance Etisalat's coverage in the region with highly profitable markets, such as Sudan and Iraq. The Agency also notes the potential for asset sales (eg, Saudi operations). Fitch also takes comfort in the 60% ownership of UAE government and its past support to even out leverage spikes when large deals are consummated. The agency sees government support as integral to the company's international expansion plans.
Fitch does not expect to take any formal rating action until the signed offer, detailing the actual purchase amount and how it will be funded, is in place or is likely to be put in place. The agency will consider the legal, operational and strategic links with the UAE in any rating action.
Global Arab Network