Asiacell IPO Signals Iraq’s Attractiveness As A Frontier Market

Asiacell, Iraq’s second-biggest mobile phone operator, raised US$1.3bn in its recently concluded initial public offering (IPO), the biggest in the Middle East since 2008. Around 70% of the shares were bought by foreign investors, mostly regional investment houses. The firm decided not to offer global depository receipts (GDRs), meaning all its shares are traded on the Baghdad Stock Exchange. Market capitalisation of the bourse nearly doubled after shares in Asiacell made their trading debut, from US$4.70bn to to US$9.65bn.

Asiacell’s rivals Zain and Korek are required to list up to 25% of their shares on the stock exchange eventually. We expect both operators also to attract considerable interest from investors. At the end of Q312, Asiacell had a market share of 36% in Iraq’s mobile market, compared with Zain’s 50% and Korek’s 14%.

Investor interest in Asiacell shares beat most analysts’ expectations, mainly because of positive fundamentals in the telecoms sector. These include:

  • Strong revenue and profit growth, as opposed to flat revenues and declining profits in most markets in the region
  • Average revenue per user (ARPU) resilience despite the lack of 3G network services
  • Significant growth opportunities for voice and data services, with mobile and broadband penetration rates lagging other countries in the region by wide margins

Iraq is the most attractive frontier telecoms market in the Middle East in terms of market size and macroeconomic fundamentals. The other frontier markets and their challenges are:

  • Iran: Closed to foreign investments because of international sanctions and strong government interest, through the Revolutionary Guards, in the telecoms market.
  • Lebanon: A small market (less than 5mn people) with total state control of the telecoms sector.
  • Syria: Caught in a state of civil war.
  • Yemen: Elevated political risks and a poorer population than most other countries in the region.

That said, there are significant industry-specific and political and macroeconomic risks in Iraq. The political and macroeconomic risks are well documented by Business Monitor International (BMI)’s Country Risk team. In terms of industry-specific risks, Iraq’s telecoms regulator is not independent of political interference. This means that key policies, such as the allocation of 3G spectrum, competition in the fixed-line market, and possible award of more mobile licences, are driven by political expediency, as opposed to market forces.

Further coverage of Iraq’s economy and the global telecoms market is available to subscribers at Business Monitor Online.