JEDDAH, 20 March 2008 — Following a recent announcement by the Saudi Capital Market Authority (CMA), that Zain, an affiliate of Kuwait-based Mobile Telecommunications Company, is scheduled to make its official debut on the Saudi Tadawul on Saturday, has shareholders anticipating turning big profits but has analysts advising otherwise.
“I don’t expect that the stock price of Zain will increase substantially as being expected and rumored by many investors,” said Hisham Tuffaha, senior financial analyst, Bakheet Investment Group, Riyadh. “I think that once it opens at SR10 the increase range will be a maximum of 15-20 basis points primarily because Zain is in the telecom sector which takes time to develop and with another reason being due to the tough competition the company will face once it launches operations.” Tuffaha also said that savvy investors who decide to hold on to their shares could see a bigger pay off after 6 months or more once the valuation of the company becomes clearer.
“One has to look at the company and that it is just getting started in the Kingdom and look at when Zain will break even in order to begin making solid profits,” he said, referring to the massive SR22.9 million the company recently paid to obtain the Kingdom’s third mobile license.
Other company debts include a signing of a deal worth SR3.6 billion ($935 million) with Nokia Siemens Networks to develop and maintain its network in Saudi Arabia. The contract will provide 70 percent mobile coverage and will allow Saudi Zain to offer 2G and 3G network service from the first day the company goes into operation which is expected to be the second period of the first quarter of this year. The remaining 30 percent will be covered through agreements made by Zain with Saudi Telecom Co. and Etihad Etisalat (Mobily).
Commenting on the deal made with NSN, Marwan Al-Ahmedi, CEO of Zain was quoted on the occasion as saying, “This huge project will radically change the face of mobile communication in the Kingdom and sets a benchmark for future mobile communication companiesin the region.”
However, Prince Dr. Hussam bin Saud, chairman of Zain told reporters at a press conference last month that he expected the company to be able to generate profits some three years after launching its services.
Even more reason, analysts say to contemplate adopting different trading behavior for this company’s Tadawul debut. “With the entrance of Saudi Zain on Saturday, I think that if there were no upcoming IPO’s any time soon many shareholders would opt to hold on to Zain and ride it out until the stock price increased substantially before selling but since we have the IPO of Al- Inma Bank coming up next month, many short term traders will decide to sell their shares to raise cash to participate,” he said.
Rumors have also been circling that as much as 60 percent of customers currently with STC’s Al Jawal and Etihad Etisalat’s Mobily are expected to switch to Saudi Zain, due to it’s generous service package which is said to enable customers to travel worldwide without being charged international or roaming charges.
The Zain IPO which was held from Feb. 9-18 and offered 700 million shares for SR10 each, got an overwhelming response with as many as 8.2 million Saudi investors purchasing 1.7 billion shares worth SR17 billion and oversubscribing the IPO by 269 percent, according to Banque Saudi Fransi (BSF), managers of the IPO.