An investment consortium led by Saudi sovereign wealth fund Public Investment Fund (PIF) has taken ownership of Zain’s tower business unit, now named Golden Lattice Investment Company (GLI), and into which Zain will begin transferring its 8,069 towers. PIF joined with Prince Saud bin Fahad and Sultan Holding Company back in February to acquire the towers for US$807mn with Zain to receive of 2.4bn Riyals and a 20% stake in GLI. PIF will take a controlling 60% stake, Zain 20% and 10% by Sultan Holding Company and Prince Saud din Fahad. The relatively low valuation of US$100k per tower implies a modest lease rate for the operator.
The portfolio needs to be transferred within 18 months of financial completion, by which 3,000 sites are expected to have been transferred. The offer also grants PIF the right to buy the Zain’s remaining 20% at a certain amount later.
Since the announcement Zain’s shares rose just over 2%, while in the longer-term Zain has seen profits more than double to 214mn riyals in the first half of 2022, 157% higher than the same period last year. Driven by growth in business-to-business and 5G generation as well as a post-pandemic return of international visitors.
Who are the buyers?
PIF is one of the world’s largest sovereign wealth funds and a key investment vehicle the House of Saud is using to diversity the country away from oil & gas, as well as launch ambitious new development projects. Formed in 1971 the fund largely invests in non-oil & gas projects. Under a five-year strategy announced in January last year the fund aims to more than double the value of its assets under management to over US$1tn and commit US$40bn a year to develop the domestic economy until 2025. PIF is the 70% shareholder of stc, one of Saudi Arabia’s three MNOs, which in turn is the whole owner of TAWAL.
Sultan Holding Company is an Emirati business based in Abu Dhabi with a diverse investment portfolio spanning real estate, IT, engineering and oil & gas. Prince Saud bin Fahad is a member of the House of Saud.
Saudi Arabia’s bustling tower market
Saudi Arabia has three MNOs; market leaders stc, Mobily (in which Etisalat has a 27% stake and looking to increase to 50%) and Zain, as well as two MVNOs Virgin Mobile and Lebara. Saudi is the largest Middle Eastern tower market at 37,238 towers with local towerco TAWAL owning 15,569 of these.
Infrastructure sharing has been limited in the Kingdom until the introduction of TAWAL with just over 2% of sites holding more than one tenant. This has been slowly increasing; when TAWAL launched in 2019 10% of sites were co-located at a 1.1x tenancy ratio. This has increased to 1.2x having added 1,000 colocations in 2022. TAWAL is also taking over network rollout of other operators, building 60-70% of Mobily’s new sites and recently signing with Zain.
Despite this, a history of no infrastructure sharing has led to 95% of Zain and Mobily’s sites overlapping which has encouraged the government to promote infrastructure sharing. TAWAL has become the dominant driver of this but no doubt the Zain/PIF deal will continue to drive the role of towercos and encourage infrastructure sharing. Macro coverage has reached around 90% for 3G/4G and 60% for 5G with good urban coverage. Macro rollouts are now focused on rural white spots and network densification as the focus shifts towards low-latency micro coverage for 5G networks.
A tumultuous journey for Zain’s towers
Zain’s towers have been an attractive portfolio for some time. Back in 2015 Zain appointed Citigroup to study the potential for a tower sale across its operations in multiple markets which led to processing a sale of their Saudi and Kuwaiti towers. Zain first entered negotiations with a consortium including TASC Towers and local conglomerate ACWA Group with a reported valuation of around US$500mn. However, with the consortium unable to raise the funds within the required time frame the deal was subsequently cancelled.
Two further attempts were made by Zain to sell the towers. In 2018 Zain reached a deal to sell to IHS Towers for US$647.7mn on a 15-year SLB term and an additional 1,500 BTS commitment. However, the Saudi regulator interjected citing unspecific failures in the deal in June 2019, although IHS Towers did successfully finalise with Zain in Kuwait for US$140mn in early 2020 and now operate a portfolio of 1,446 towers in the country. IHS Towers and Zain KSA announced a later deal in 2021 which would have seen IHS Towers and local investment group Raidan form a consortium to acquire the towers of Zain and Mobily but this was later abandoned by Mobily, citing strategic concerns.
The beginning of the end?
Despite this back and forth, Zain has now transferred ownership of its tower business unit to PIF under the new holding company GLI which received regulatory approval earlier this year. Initial payments have yet to flow in one direction and towers in the other, but the momentum is now there. This now paves the way for the sale of its 8,069 towers and bring Zain KSA in-line with their regional strategy having offloaded their towers across Jordan, Iraq, Bahrain and Sudan to TASC Towers. Zain’s regional exit from the passive infrastructure space has opened the door for other MNOs to follow suit with Ooredoo becoming the next multi-country operator to put their sites up for sale. With Orange currently reviewing their towers in the region, Etisalat remains the final major regional operator to make a move, something they are likely keen to do assuming they can convince their local shareholding partners.
Although plans for GLI aren't confirmed, PIF has sent stc a binding offer to buy 51% of TAWAL for SAR 21.94bn. The offer is non-binding so has no obligation for either party and will be subject to regulatory approval but PIFs intentions are rather clear; move TAWAL from stc and merge with GLI to form an independent towerco that consolidates the Saudi tower market. However, Zain's 20% retaining stake in GLI poses a challenge, as this would be carried over into TAWAL shares during the process. This leaves the finer details of a merger unknown and if PIF intends to buy Zain's shares back as part of the process this will likely cause delays. However, we can expect to see TAWAL becoming around the 25th largest towerco in the world with over 23,000 sites. Not only does this put TAWAL in a stronger position to expand into other markets but gives the towerco access to PIF-funding for any M&A activity.
