JEDDAH, 4 January 2003 — Saudi Telecom Company (STC), which has a monopoly over fixed and mobile telephony in Saudi Arabia until 2008 and the fourth quarter of 2004 respectively, estimates that its share offering of SR170 amounts to a discount of 33 percent because its targeted price is SR255.
The subscription deadline is set for Jan. 6, and the SR10.2 billion public offering size represents 20 percent of the company’s market capital of SR51 billion.
The tight regulatory environment provides up to three years greater protection for STC when compared to other regional telecom operators. Investors have accordingly an unmatched opportunity to profit from STC’s monopolistic position. This position has provided STC an unparalleled opportunity to profit from the huge Saudi telecom market. In 2001 alone, the company’s total revenue reached around SR19.8 billion ($5.3 billion), indicating the immense size of the Saudi market. In 2002, revenue is expected to grow by around 25 percent.
The SR19.8 billion revenue was generated in 2001 from 3.2 million fixed-lines and 2.5 million mobile subscribers. While mobile subscribers grew by 37 percent to 3.5 million during the first six months of 2002, fixed lines remained nearly stagnant over the same period. This indicates a high substitution effect in the Saudi market. This happened despite the fact that fixed lines connection fee was first decreased in 2001 from SR500 to SR300, a 40 percent decrease.
Despite the increase in the revenue, EBOZDA (earnings before other income and expenses, zakah, depreciation and amortization) are expected to decrease in 2002 by around nine percent, the reason being that government charges are set at 27 percent of total revenues (as opposed to 20 percent in 2001). 2003 EBOZDA is expected to increase again as these government charges, which took an additional SR1.7 billion (seven percent of revenues) out of 2002 revenues, will be reduced again to 20 percent, and also because of the growth expected to continue in STC’s mobile business. 2003 EBOZDA is expected to reach around SR10 billion ($2.67 billion).
STC privatization rationale has concentrated on creating an adequate financial scheme for the company, reorienting the company from a government entity to a product and service oriented one, and planning for market liberalization expected to take pace in 2004 for mobile telephones and 2008 for fixed ones.
(Basil Al Ghalayini is president of BMG Financial Advisors)