Telecom Sector of Oman towards liberalisation (Oman)25% stake in the Oman Telecommunications Company (Omantel) up for sale.According to the MoF’s secretary general, the further privatisation of Omantel is another example of the government’s commitment to liberalising the economy.
On July 7, Oman’s Ministry of Finance (MoF) said it was seeking submissions from strategic investors to buy into Omantel, with the state planning to lower its stake in the company to 45%. At the current trading price for Omantel shares, the 25% stake in the company would be worth $1.15bn, with the entire company valued at $4.6bn.
“The Omani telecom market still has excellent growth potential and Oman offers an attractive economic environment which we are certain will appeal to bidders,” the MoF further added.
Oman is moving quickly with the privatisation process, having set a deadline of July 18 for the submission of initial bids. It intends to close on the sale before the end of 2008.
A series of conditions have been set for the sale to ensure the interests of the company, and the country, are protected, despite the government seemingly looking to reduce its involvement.
The terms of the sale include a requirement for bidders to have substantial experience in operating fixed line and mobile services, and an operational presence in several countries with a minimum of 5m active subscribers, including at least 2m in a single market. Omantel’s new strategic partner must also give a commitment to retain their stake in the company for at least five years.
The government mooted the latest dilution of its holding in Omantel late in 2007. The initial stage of the company’s privatisation took place in 2005, when the firm was listed on the Muscat Securities Market and 30% of its shares taken up by public and institutional buyers.
The Omantel sale is expected to generate considerable interest, given the company’s perceived potential for growth potential. It has a monopoly on fixed telephony and internet services, and has room for more expansion. As of the end of 2007, Omantel had 270,000 fixed line subscribers - approximately 10% of the population - and 69,000 (3%) internet customers. Both figures are among the lowest penetration rates in the region.
In contrast, the telco’s mobile phone division has a 60% share of the market, with rival operator Nawras holding the remainder. Between the two there are 2.48m subscribers, representing a take-up rate of 96%, though here too there is potential for growth. A number other Gulf countries have a penetration rate of more than 100%, with many subscribers owning more than one mobile phone.
The company has performed strongly in its local market, with net profits of $502m last year from overall revenue of $950m. Unlike many other telcos in the region, Omantel has not to date made significant moves in expanding beyond its home base, its only major overseas investment being Worldcall Telecom of Pakistan, which it bought for $193m in April 2008.
Despite its successes and strength in the local market, Omantel is seen by analysts as in need of further investment if it is to continue to develop, with the government unwilling to commit funds.
Size has become one of the main requirements for regional telecom operators to be successful said Jithesh Gopi, head of research at Bahrain-based SICO investment bank.
“It becomes increasingly difficult for smaller operators like Omantel to compete in these markets. When you have a strong strategic partner who has deep pockets and scale, upgrading technology and investing in the local market becomes easier,” as told to local press.
Even before the terms of the sell-off were announced, Omantel already moved to bolster its finances. On June 24, Omantel announced it had sealed a $205m syndicated loan through Mashreq Bank, the company’s first ever debt financing.
Mohammed Bin Ali Al Wohaibi, Omantel’s chief executive officer, said the deal constituted a fresh step by the company towards entering the international financial market for its external investments in the telecom sector.
The loan would expand the company’s investment base not only in the sultanate but also at the regional and international levels, he added.
The loan facility is relatively small, just slightly more than the amount Omantel paid for Worldcall. Funding a major programme of expansion or acquisition - as the government intends - will require a larger injection of funds. This where a private strategic partner can help.
