Omantel Stake For The Risk Averse

On September 17 2013, Oman's government announced plans to sell a 19% stake in Omantel , the country's incumbent operator , according to a statement to the Muscat stoc k exchange . The stake is v alued at around OMR221mn (US$57 5mn) based on the company's current market value. While there would be substantial interest in the stake, BMI believes that the operator will appeal most to risk averse investors .

Not Growing Much
Oman Telecoms Penetration (%)

The Omani government currently owns a 70% stake in Omantel and would retain a 51% stake in the operator after this round of privatisation. Although the government would still retain a majority stake in the incumbent operator, BMI believes its openness to privatisation bodes well for competition and growth in the telecoms market. Oman is one of the most competitive markets in the region with multiple fixed and mobile network service providers, including MVNOs. The Omani government had previously planned to divest some of its stake in the incumbent operator in 2007 but postponed the move as a result of the global financial crises in 2008.

BMI believes the government's decision to restart the process is likely due to the need to boost the country's income amid a worsening fiscal outlook. Latest data from the Ministry of Finance shows that Oman's budget surplus totalled OMR1.2bn (US$3.1bn) in the first five months of 2013, down by 24.5% from the same period of 2012. Total expenditure grew by 3.6% y-o-y to OMR4.7bn, while government income fell by 1.5% in the same period. The proceeds from the privatisation would be a welcome relief to the state treasury.

BMI notes that most GCC governments that have significant interests in the telecoms sector have tended to shield the incumbent operators from extreme competition. However, the Omani government has taken a different view by allowing competition in the country's telecoms sector, where Omantel competes with Ooredoo and a number of MVNOs. Unsurprisingly, the government's announcement spooked existing investors, with company's shares falling by as much as 10% in trading following the announcement. BMI believes that investors' main concern is the likelihood of new developments that could expose Omantel to more intense competition in the telecoms market.

This concern is further accentuated by the fact that Omantel's key strength is its dominance the Omani telecoms market, which is fast approaching saturation. According to BMI forecasts, fixed and mobile penetration rates are expected to trend downwards over the four years to 2017. Omantel has been less keen to expand abroad compared to other GCC operators. The company's only international footprint is a 57% stake in Pakistani operator Worldcall, which contributes around 20% of group revenues and an even lower proportion of net profits.

In view of these factors, we believe that a stake in Omantel would appeal most to risk averse investors looking to add stable assets to their regional portfolio as opposed to those looking for high growth but riskier telecoms assets such as the Zain Iraq IPO. There is no indication yet regarding the type of investors that would be bidding for the stake, although we expect financial investors to be in pole position to snap up shares in the operator.

This article is tagged to:
Sector: Telecommunications
Geography: Oman

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