Foreign share ownership of etisalat will lift share prices

Tuesday, Jun 23, 2015

Dubai: The federal government’s decision to lift the restriction on etisalat stock ownership will definitely lift the share prices in the short term and raise some funds for its expansion drive, industry experts told Gulf News.

“I think the move is to raise funds by selling some shares and free up some cash. They disinvest here and invest in some other markets,” said Sukhdev Singh, vice-president at market research and analysis services provider AMRB.

The UAE telecom operator operates in 19 markets across the Middle East, Africa and Asia and is awaiting the regulatory approval to exit the Tanzanian market by selling its 85 per cent stake in Zanzibar Telecom Ltd (Zantel) to Sweden’s Millicom.

“The operator is under pressure due to the fall in oil prices. They will be looking at other markets in the Middle East and North Africa for expansion. It is a good start for other parties to have a stake in etisalat. 20 per cent may not be a majority but a significant portion,” he said.

Etisalat Misr, the Egyptian phone company controlled by the UAE telco, is considering an initial public offering.

Etisalat said in a statement to the Abu Dhabi bourse that Emirates Investment Authority (EIA), a UAE government fund that owns 60 per cent of the Abu Dhabi company, had no intention of reducing its stake in the operator for the time being.

As EIA has said that it has no intention to sell its shares, Singh said the UAE citizens, which hold the remaining 40 per cent stake, will benefit from the move as the share price will increase. Foreign investors are keen to invest in the company.

“It all depends on price and demand situation. There are buyers who are ready to pay a premium and the short-term effect is that the share price will shoot up. It is a huge profitmaking company with a very strong bottom line,” he said.

Vijay Harpalani, Assistant Fund Manager at Al Mal Capital, said that the removal of ownership restriction is expected to be a strong catalyst for the stock and will enhance trading volumes on Abu Dhabi exchange. It also makes the stock a “potential entrant” to the MSCI emerging market index possibly in the near future. Having said that, he said the stock looks “attractively valued” compared to its regional peers in terms of valuation perspective.

The UAE joined MSCI’s emerging Market index on May 29, 2015, and etisalat was not included in the index.

“We believe there is a lot of pent-up demand from foreigners as the stock is considered a pure play on the UAE’s attractive demographics with relatively higher dividends,” he said.

According to etisalat, the removal of restriction does not apply immediately, and is subject to regulatory approval timelines, which has not yet been announced.

Hence, Harpalani said that it is likely that the UAE nationals may want to sell some of their holdings to book some profit.

Singh said that it is certainly a step towards opening up the telecom market. However, it would be too early to say if the new shareholding will automatically pave path for new competition in form of a third operator or a MVNO (mobile virtual network operator).

“Allowing a third operator is largely driven by the direction of the TRA for the telecom sector as a regulator. UAE is a sizeable market and new competition will certainly spice up the market, more to benefit of the end consumers,” he said.

He said that 20 per cent stake will not lead to a third operator entering the market. Once they open up the market a little more over the next three to five years and have a sizeable share of some external shareholder, then the market dynamics may change.

etisalat shares closed 15 per cent higher at Dh13.80 on Abu Dhabi bourse.

By Naushad K Cherrayil Staff Reporter