The first potential tower sale and leaseback in the Middle East was mooted over a year ago, with Zain appointing Citigroup to advise on a potential tower transaction in two Gulf countries in early 2015. Mobily, Etisalat’s operation in Saudi Arabia was next to follow suit, appointing TAP advisors to look into a potential sale of their towers. Fast forward 12 months and Saudi Telecom Company are now joining the party – potentially putting all operator owned towers in Saudi on the market at the same time. TowerXchange take a look at the portfolios potentially for sale, examine the latest developments in the processes and explore who the likely bidders will be.
The Saudi and Kuwait mobile markets
Both Saudi Arabia and Kuwait have developed mobile markets with three mobile network operators and almost complete population coverage. Rollout of LTE is well underway, limiting the potential for capacity enhancements, but with little bi-lateral infrastructure sharing underway there exists potential for increasing tenancy ratios on many towers. Whilst there are only three operators in each market, all are credit worthy; what’s more Saudi Arabia represents the biggest mobile market in the Arab world whilst Kuwait has the highest ARPU in the Middle East. In summary, both the Saudi and Kuwait markets should be viewed as low risk, low growth markets – more akin to Europe than their African counterparts.
Spotlight on the sellers
Zain
Market position: 3rd in Saudi Arabia, 1st in Kuwait
Towers for sale: 5,000 in Saudi Arabia, 1,600 in Kuwait
Zain has a footprint in eight countries in the Middle East (Bahrain, Jordan, Kuwait, Lebanon, Iraq, Saudi Arabia, Sudan and South Sudan). In Kuwait, Zain is the market leader with 44% market share, whereas in Saudi Arabia the company is the number three operator and has long-term debts of US$2.95 billion and is battling to compete against STC and Mobily.
Following an initial appointment of Citigroup in 2015 to examine a potential sale in two Gulf countries, Zain CEO Scott Gegenheimer confirmed the company was opening a process for a sale of both their Saudi and Kuwait towers later in the year. In March 2016 year it was announced that they were in the process of narrowing down potential bidders although no public announcements have yet been made.
In Kuwait, 1,600 towers are up for grabs; in Saudi Arabia some reports suggest the company to be selling 5,000 towers, whilst others put the number at 7,000. Zain had originally looked at including South Sudan towers in the process but given the political instability in the country it seemed unlikely they would attract a bidder and the process appears to have been dropped.
Mobily
Market position: 2nd in Saudi Arabia
Towers for sale: 9,600 in Saudi Arabia
Mobily is 27% owned by the UAE’s Etisalat which has a footprint in 15 countries across Africa and the Middle East. Etisalat has monetised their towers in Nigeria, selling a total of 2,691 towers in two tranches to IHS in 2014.
Mobily saw its shares fall by more than 50% following the discovery of accounting irregularities over a year ago. Following the news, Mobily appointed Ahmad Farroukh (former CEO of MTN South Africa) as its new CEO and Kais Ben Hamida (former CFO of Egypt’s MobiNil, who recently sold 2,000 of their towers to Eaton Towers) as its CFO.
TAP Advisors, with a long standing history of running tower transactions, are reportedly leading the Mobily process which is thought to encompass 9,600 towers
Saudi Telecom Company
Market position: 1st in Saudi Arabia
Towers for sale: 16,400 in Saudi Arabia
Saudi Telecom Company (STC) is the leading operator within the Kingdom of Saudi Arabia, and has a footprint in Kuwait, Lebanon, Jordan, Bahrain and South Africa as well as interests in India, Malaysia and Turkey. As well as boasting 45% of the market share in Saudi, STC owns over half of the country’s estimated 30,600 towers.
In June of 2011, STC had entered into discussions with number two operator, Mobily, regarding the creation of a captive tower company but an agreement was not reached. More recently a new round of rumors circulated suggesting STC was advocating a joint venture towerco between the KSA MNOs. It is now rumoured that STC is once again considering the monetisation of its ~16,400 towers.
What will be the potential deal structure?
Most observers feel that a sale and leaseback structure will be the favoured model although to what extent the operators would look to retain equity is unknown. A further structure has been thrown into the mix recently, with Saudi financial news reporting in Mid-March that Mobily and STC have entered into talks to examine the option of establishing a joint venture through which to manage their towers. When questioned on the matter, Zain, who are believed to be further along in the sale process also revealed that they were keeping their options open, with CEO Hassan Kabbani stating that the company was also assessing both strategies.
Spotlight on the potential buyers
The upcoming transactions are likely to have no shortage of suitors. We take a run though who the mooted leading contenders for the portfolios are.
Digital Bridge
Formed in 2013 through a partnership between serial tower entrepreneurs Ben Jenkins and Mark Ganzi, who sold Global Tower Partners to American Tower. Digital Bridge have investments in towercos Vertical Bridge, Andean Tower Partners and Mexico Tower Partners as well as small cell player ExteNet systems. The company has recently appointed Phil Cooper as head of EMEA and are rumoured to be one of the leading players in both the Zain and Mobily processes. Their bid reportedly has the backing of state owned Saudi Aramco and emerging markets focused buy out firm Abraaj Group.
Providence Equity Partners
Providence Equity are a global private equity firm specialising in media, communication, education and information industries. They already have money at work in towercos Indus Towers (India), Grupo Torresur (Brazil) and KIN (Indonesia). Their bid for the Mobily and Zain assets is believed to have the backing of an as yet, unnamed Middle Eastern investor.
IHS
IHS is Africa’s leading towerco with a portfolio of over 23,000 sites across Nigeria, Cote d’Ivoire, Cameroon and Zambia and have completed nine transactions of scale across the continent. Their portfolio is heavily biased towards West Africa, and more specifically Nigeria where two thirds of their towers are located. With the company thought to be gearing up for an IPO, the acquisition of assets in Saudi Arabia and/or Kuwait will provide a more balanced portfolio which is likely to increase its attractiveness to investors in a prospective IPO.
American Tower
As the world’s second largest tower company (behind China Tower Company) and with a truly global footprint, it is highly likely that American Tower would be considering an acquisition in a new region where there are no major divestitures are on the cards. Whilst the company likes to keep its cards close to its chest, and has very clear investment criteria – we envisage they would have looked at the portfolios closely.
Towershare
Towershare run Pakistan’s largest towerco with a portfolio of 800 sites. Having re-located their headquarters to Dubai, their focus now turns to the Middle East, with an appetite to enter the market rapidly. Raising US$100mn in private equity from Cyan Capital and other regional private equity investors, they are putting the capital in place to participate in current processes.
TASC Towers
As one of the few towercos currently operating in the MENA region, TASC Towers with their Jordanian portfolio look a likely candidate to participate in the Saudi and Kuwait processes with Zain also having a presence in the Jordanian market.
Quippo International
The ownership team behind Viom Networks in India are now seeking new international opportunities following their successful exit and sale to American Tower. They are believed to have an appetite for opportunities in Russia (although are not thought to be among the shortlisted bidders for the VimpelCom transaction) and are also highly likely to have an appetite for the towers in Saudi and Kuwait.
Local investors
Whilst lacking the expertise of the international towercos, local family funds are known to have expressed an interest in the upcoming transactions, with Al Rajhi Group and Al Zamil Group amongst the names reported. With both Digital Bridge and Providence Equity known to have the backing of local investors – further investors may look at a partnership.
