Investor Interest In Zain Bahrain IPO May Be Muted

Zain Bahrain could list up to 15% of its shares on the stock exchange after it received government approval to launch an initial public offering (IPO), according to local media reports. BMI predicts a weak response from investors, particularly foreign investors, in view of the operator' weakening position in the Bahraini telecoms market and the prospects for more attractive IPOs in the region .

Kuwait-based Zain Group has a 56.25% stake in Zain Bahrain. Other shareholders in the company include Zain Bahrain's chairman, Sheikh Ahmed bin Ali Abdulla al-Khalifa, UK-based Vodafone Group and a government pension fund, according to regional research firm Zawya. Zain has not provided details on the IPO, including the possible new ownership structure and the timeframe for the completion of the process. However, local media reports suggest the listing would likely be on Bahrain's bourse.

Saturated Market Offers Little Growth
Bahrain Mobile Growth, 2010-2017

BMI believes a number of unfavourable factors could dampen investor interest in the IPO. Perhaps the most notable factor is the much expected IPO by Zain Iraq, expected to take place in 2013. The Zain Iraq IPO, which could mirror the hugely successful Asiacell IPO, promises significantly higher returns, despite Iraq's elevated political risk profile. The Iraqi telecoms market is grossly underserved, with voice and data penetration far below regional averages. This, along with ongoing economic reforms in the country, will ultimately drive growth in the telecoms sector through strong corporate and consumer demand for higher value services. Meanwhile, Zain Iraq is the largest telecoms service provider in the country, putting it in a strong position to take advantage of growth opportunities in the market.

By contrast, the Bahraini telecoms market is much smaller in terms of population and approaching saturating, with mobile penetration of almost 150%, according to BMI data. Furthermore, Zain Bahrain underperformed its rivals in the three years to December 2012, losing 233,000 subscribers, or one-third of its subscriber base, between Q409 and Q311. Although the operator reported positive growth in the six quarter's to December 2012, BMI notes its subscriber base of 616,000 at the end of 2012 is still significantly less than its peak subscriber base of 700,000 recoded at the end of 2009. The company has also performed poorly financially, with weaker revenues and profits in 2012 compared to the previous two years. Meanwhile, latest regulatory data suggest it may have lost second position in the market to newcomer VIVA, a serious indictment of its performance so far and possible cause for concern for potential investors.

That said, Bahrain's relatively high GDP per capita and rising public sector wages, which are driving private consumption growth, makes the market suitable for high-value services, especially advanced mobile data services. Zain is expected to deploy 4G network services after the regulator has resolved all legal challenges to its recently concluded spectrum allocation exercise. However, we are doubtful this will be sufficient to lure investors away from more attractive investment opportunities in the region.

This article is tagged to:
Sector: Telecommunications
Geography: Bahrain, Iraq, Kuwait

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