Saudi Arabia’s sovereign wealth fund The Public Investment Fund (PIF) has reached an agreement with mobile network operator Saudi Telecommunications Company (stc Group) for PIF to acquire a 51% stake in Telecommunication Towers Company (TAWAL) from stc Group.
Subsequently, PIF and stc Group will consolidate TAWAL and Golden Lattice Investment Company (GLIC or Latis), in which PIF holds a majority shareholding, into a new entity. This new towerco will be 54% and 43.1% owned by PIF and stc Group, respectively, with GLIC minority shareholders owning the remaining issued share capital.
The transaction is expected to be completed in the second half of 2024 after obtaining all required regulatory approvals and satisfying other necessary conditions under the agreements.
Raid Ismail, Head of MENA Direct Investments at PIF, said “Today's announcement is a significant milestone for the telecommunications industry in Saudi Arabia and the wider region. By bringing together the assets of GLIC and TAWAL, we will establish a consolidated platform on which the telecommunications sector can flourish and give people a better experience to best connect communities and businesses.
Motaz Alangari, CEO, stc Group, commented “These agreements are part of stc Group’s continuous endeavour to grow and maximise value in the most sustainable manner, by recycling capital while retaining ownership in strategic value-added assets to benefit from the return on these assets and enable expansion into new domains.
PIF describe the new entity as playing a significant role in enhancing consumer experience and network coverage as well as improving connectivity and mobile internet speeds by consolidating Saudi Arabia’s tower assets. It will also deliver operational efficiencies, help drive wider innovation in the telecommunication sector across the region and globally, and support development of a more efficient and frictionless business environment.
Background to the merger
The journey to Saudi Arabia’s tower consolidation began in 2019 when stc Group, the leading MNO in Saudi Arabia and majority owned by PIF Group, carve-out its telecom towers into TAWAL in 2019, becoming the first operator in the Middle East to form their own towerco.
Inheriting a portfolio of over 14,000 towers, TAWAL has since taken over network rollout for stc Group and signed lease and new build agreements with Zain KSA. TAWAL has also been steadily increasing its tenancy ratio from 1.x to 1.15x after 12 months and up to 1.2x, leading the way for the adoption of the neutral host model.
Meanwhile, PIF continued to pursue its consolidation strategy in Saudi Arabia with the acquisition of Zain KSA’s 8,069-tower portfolio that finalised in October 2023, leading a consortium alongside minority investors Prince Saud bin Fahd bin Abdulaziz and Sultan Holding Company. These sites were transferred into GLIC with Zain KSA retaining a 20% minority stake, PIF owning a majority 60% and the two minority investors holding 10% each.
These sites have been transferred over in batches of 3,000 sites, although GLIC are already responsible for full operations and maintenance of the entire portfolio, consisting of a 60:40 split between traditional macro towers and rooftop sites. GLIC also have a build-to-suit commitment of 2,500 new sites for Zain that were expected to be delivered over the next 10 years, but due to demand may be fulfilled in half that time.
Following the acquisition of Zain’s towers, PIF then acquired the MNOs remaining 20% stake in GLIC, upping their ownership to 80% and making GLIC a pureplay independent towerco.
The announced merger between TAWAL and GLIC is not one of surprise, as the intention to combine both entities has been known for some time. PIF first offered to buy a majority stake in the towerco unit back at the end of 2022, making a non-binding offer to stc Group for 51% of TAWAL.
The deal seemed to remain on ice since then, likely due to PIF finalising their acquisition of Zain’s sites, and TowerXchange has speculated that the two entities will become merged eventually as it makes little sense for PIF to own two competing towercos in the same market.
TAWAL and GLIC have also had more relations than just the same parent company. CEO of GLIC Khaled Muhtadi was previously the advisor to the CEO of TAWAL and played a key role in assisting with launching the newly established towerco since 2019.
PIF has ambitious plans to fulfil
The merger also aligns with PIF’s wider plans for Vision 2030. Vision 2030 is Saudi Arabia’s grand strategy to leverage the country’s fast reserves of capital from natural resources to drive economic diversification, development and rapid acceleration and adoption of new technology, driven principally by PIF.
A big part of this vision is the transformation of the telecommunication sector given the role this industry plays in stimulating economic growth, boosting competition and raising service standards. It also serves as a springboard for the digital transformation of other industries including healthcare, education and tourism; all core pillars of the Vision 2030 strategy.
To this end, TAWAL emerged as an engine to build out the country’s connectivity infrastructure backbone, launching with a clear vision to become the leading regional ICT infrastructure service provider. In addition to macro tower build-to-suit, TAWAL has a portfolio of products including in-building solutions and modular small cells which are helping to build up the Kingdom’s mm-wave 5G layer.
TAWAL also signed several agreements with megaproject developers, including Dariyah Gate and NEOM, to provide planning, deployment and operations of telecom infrastructure. This is a critical part of smart city development, as the implementation of AI and IoT use-cases such as autonomous vehicles and drones requires resilient high-capacity 5G.
Both Ismail and Alangari referenced this role in their comments on the merger, with Ismail stating that “it is also in line with PIF’s strategy and the Saudi Vision 2030. Fast, reliable and accessible connectivity is a key enabler of growth and a cornerstone for the society, and these agreements mark a major stride towards a more interconnected digital future.”
Alangari also commented that “today’s announcement is in line with stc Group’s strategy and the pivotal role that the group is playing in accelerating the digital transformation of society and the economy in Saudi Arabia and the region. Combining TAWAL and GLIC is a stepping-stone to consolidating the Saudi tower market and driving further efficiencies and operational excellence to deliver superior experiences and value for customers”.
What this means for Saudi Arabia’s tower industry
The consolidation of TAWAL and GLIC will bring numerous benefits and accelerate activity for the Kingdom’s tower ecosystem.
Firstly, the new entity will comprise of over 24,000 towers will massively improve scale of operations, helping to drive cost-efficiencies for operations & maintenance across a much larger footprint. It will also bring together stc Group and Zain under a single tower infrastructure owner, making it much easier for TAWAL to drive up tenancy ratios by co-locating both MNOs across their whole network. It can be assumed that some decommissioning may take place once both portfolios sit under a single entity to reduce any network overlap, further improving efficiency.
Volume at home will also help boost competitiveness abroad. TAWAL has already made clear its ambitions to play on the international stage with its International Expansion Strategy in 2020, expanding into Pakistan with the acquisition of local towerco AWAL Towers, becoming TAWAL Pakistan, and entering the market’s bustling build-to-suit market.
In August 2023, TAWAL signed a landmark agreement to acquire 4,800 towers from United Group in Bulgaria, Croatia and Slovenia for US$1.34bn including a mix of ground-based, rooftop and small cell sites and an additional 2,000 build-to-suit commitment. TAWAL was also known to be involved in the final bidding stages of Qatar-based regional MNO Ooredoo for their 20,000-tower sale but lost out to TASC Towers.
Now that both stc Group and Zain have divested their tower infrastructure, the only remaining MNO with a passive infrastructure network is Mobily. TowerXchange understands that Mobily is currently in the early stages of planning its own passive infrastructure review to bring its tower to market and is already working with several consultancy and advisory firms to begin the assessment.
Assuming PIF acquires Mobily’s estimated 11,000-tower portfolio, the newly merged towerco would be consolidating around 35,000 towers and helping to provide the scale to expand further afield into new regions and markets. It is not clear what further plans PIF have for TAWAL beyond its domestic role. PIF expanded its footprint across the region in 2022 establishing five companies to invest in Bahrain, Iraq, Jordan, Oman and Sudan to explore regional investment opportunities with key sectors including infrastructure, real state and telecommunications.
