STC set to launch massive privatization sell-off

By a Staff Writer
Publication Date: 
Mon, 2002-12-16 03:00

RIYADH, 16 December 2002 — State-owned telecommunications giant Saudi Telecom Company begins tomorrow the process of selling 30 percent of its shares in the largest offering in the Kingdom since 1984.

The Initial Public Offering (IPO) involves 90 million shares of the company’s 300 million shares in a deal that will generate more than $4 billion for state coffers. Twenty percent of the shares will go to Saudi citizens while the remaining 10 percent will be sold to two public pension funds according to a decree by the Cabinet in September.

The Cabinet in early September raised the capital of STC, which has total monopoly in the local market, from $3.2 billion to $4 billion.

Local economists expect that the offering will be heavily oversubscribed as a result of the company’s lucrative profits announced since it began operating on a commercial basis in May 1998. STC posted net profits of $762.4 million in the first nine months of 2002, down 19.5 percent on net profits of $911.5 million made in the corresponding period last year. The fall was attributed to increased expenditure on the company’s restructuring programs, especially on an early retirement scheme for Saudi employees.

However, profits in the third quarter this year alone were $414.4 million, up 11 percent on the $373.6 million recorded in the same period last year. The company boasted net profits of $933 million last year and $1.054 billion in 2000.

In contrast, net profits for the period ending December 1999 from May 1998 were $1.099 billion. Saudi Telecom’s total assets grew to $11.4 billion on Sept. 30 this year. The company has a monopoly over telephone, mobile and Internet services in the Kingdom.

The company’s operational earnings grew 17 percent in the first three quarters of 2002 to $4.663 billion. The Saudi government last year approved a bill which was passed by the Shoura Council to end the state monopoly of the telecom sector.

The bill allows for the establishment of new shareholding companies and leaves a door open for foreign investors who are not allowed to participate in tomorrow’s IPO.

With 3.3 million telephone lines and three million mobile lines in a country with a population of 22 million, plenty of scope remains for growth. Last year, Saudi Telecom picked Ericsson of Sweden and Finland’s Nokia for a project to expand the GSM network to 5.5 million lines. The government has also set up the Saudi Telecommunications Commission, a regulatory body to supervise the liberalization and opening up of the market to more companies.

Gulf International Bank (GIB) has been appointed by the Finance Ministry as exclusive financial adviser for the partial flotation of shares in Saudi Telecom. STC is expected to be listed on the Saudi bourse early February to become the second largest in terms of capitalization after market leader Saudi Basic Industries Corp. (SABIC).

The government sold 30 percent of SABIC, a petrochemicals giant, in 1984 in the largest privatization ever in the Kingdom. The STC partial sell-off, which will last three weeks, is likely to expand the base of shareholders in Saudi Arabia. (AFP)

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