DUBAI, 11 April 2006 — Dubai-based Investcom is eyeing telecom licenses in Saudi Arabia and Iraq as well as acquisitions as part of its drive into fast growing emerging markets, the company’s chief executive said yesterday.
The company sees Millicom as an acquisition prospect, but Chief Executive Azmi Mikati declined to say whether Investcom was bidding for the international mobile phone operator and said offers being reported around $50 per share were too high.
Mikati, the nephew of former Lebanese Prime Minister Najib Mikati, said Investcom’s strategy was similar to Millicom’s - pushing into emerging markets where telephony is just taking off in the hope of riding a wave of rapid growth.
Investcom’s average revenues per user (ARPU), a key industry measure, are already relatively low and fell in several markets in 2005. In Syria, for example, gross revenues grew 25 percent last year but ARPU for pre-paid users fell to $18.6 from $27.6 a month.
The company is betting on a rapidly expanding subscriber base to sustain growth. Investcom had 4.9 million mobile subscribers across the Middle East and sub-Saharan Africa at the end of 2005, up 91 percent from the previous year.
“We have the capacity to keep up strong organic growth,” said Mikati after Monday’s announcement that Investcom’s net profit grew 31 percent in 2005 to $207.8 million.
“But we are also looking at non-organic growth opportunities in countries that have low penetration rates and we see quite a few opportunities,” he told Reuters by telephone from Beirut.
Mikati said Investcom was keen to enter Saudi Arabia, which announced last month that it would issue new telecom licenses this year, breaking the fixed-line monopoly of Saudi Telecom and creating a third mobile phone operator.
“A third license in Saudi Arabia is one (prospect),” said Mikati. Saudi Arabia, a nation of 24 million, has 4 million fixed lines and 14.5 million mobile phone users.
Mikati said Investcom, which went public last year, also wanted a stake in the telecoms market in Iraq, where authorities are expected to start issuing new licenses soon. “We are already involved in the process in Iraq,” he said.
Some Iraqi operators expect 400 percent growth this year, a prospect that Mikati said would easily compensate for the security costs required to set up shop in a country racked by sectarian violence and an insurgency against US-led forces.
Investcom won a mobile license last year to operate in Afghanistan, which has a penetration rate of 5 percent. Such new markets would offset pressure on Investcom’s margins in countries where the initial spurt of growth has begun to wane, Mikati said.
“We are beginning to feel some pressure on margins as some markets mature,” he said, adding Investcom’s margin on earnings before interest, tax, depreciation and amortization (EBITDA) would be 41-42 percent this year.
The EBITDA margin in 2005 was 44 percent. Investcom is determined that its drive for non-organic growth does not lead to expensive acquisitions, Mikati said. “Millicom certainly fits our criteria, operating in under-penetrated markets, and it could be quite an interesting acquisition. But we will not be forced into overpaying for assets,” he said.
Millicom, which focuses on telecoms operations in Latin America, Asia and Africa, said in January that it had received several non-binding offers.
Sources familiar with the process in Stockholm told Reuters last month that bidders had offered between $49 and $51 per share for Millicom, which is likely to be sold wholly or in part this month.
“That is way overvalued,” Mikati said.
