RIYADH, 4 April 2007 — Saudi Telecom Co. (STC) can raise up to $15 billion in debt to fund one or two large acquisitions either in Africa or Asia in its bid to enter foreign markets, a senior STC official said late on Sunday.
“We are thinking big and looking for an operator with a foothold on several markets, 15-20 million users,” the official said after a shareholders general meeting in Riyadh. “We have huge cash flow and zero leverage,” he said on condition of anonymity. “We can easily raise between $10 billion and $15 billion in debt for an acquisition that really fulfils our ambitions.” He said that the company might opt for one or two acquisitions.
STC’s cash flow topped $4 billion at the end of 2006.
The state-controlled firm is the only one of the four largest Arab telecom firms that has not made acquisitions, even after losing its mobile phone monopoly in 2005. “We have been busy tapping the potential of our market which is the biggest in the region,” the official said. Other telecom firms in the region ventured abroad earlier because of the small size of their domestic market.
STC Chairman Mohamed Al-Jasser said financing was the least of the company’s concerns. “We have no concern whatsoever on financing. The problem is finding an opportunity with a beneficial return that will be accepted by shareholders,” he said after the shareholders’ meeting. “We are examining several opportunities,” said Jasser, who is also deputy-governor of the central bank. He declined to elaborate.
STC Chief Executive Saud Al-Duweish said last month STC was focusing its search on emerging markets in the Middle East, Asia and Africa and that it had identified target markets, investment mechanisms and financing means.
STC hopes a decline in telecom stock prices would give it opportunities to make its move. “What is left now out there is of little interest for a company of our size,” the official said.
“That is why we are going for the big players. The (international telecom) market could at any time become a buyers’ market after the recent rally in stock prices,” he said.
STC was in talks with a consortium led by Kuwait Projects Co. for months before the latter sold a 51 percent stake in Kuwait’s National Mobile Telecommunications Co. to Qatar Telecommunications Co. for $3.72 billion. STC had been planning to borrow 6 billion riyals ($1.6 billion) from local banks to help finance the Kuwaiti deal. “The board is fully aware of our vulnerability to the growing competition here,” the official said.
STC posted its second drop in quarterly profit in a row in December 2006 and full-year profit was SR12.8 billion, up 2.8 percent, while it rose 33 percent in 2005.
Competition will intensify this year when the Kingdom licenses a third mobile phone firm and ends Saudi Telecom’s fixed-line monopoly.
Kuwait’s Mobile Telecommunications Co. has offered more than $6 billion to win the third mobile license. “MTC will be very aggressive on pricing,” the official said, citing the large license fee. “If they slash prices by 10 percent, we will have to follow. But the bigger size of our customer base makes our bottom line far more vulnerable to cuts like these than other operators,” he said.
Second mobile operator Etihad Etisalat, better known by its Mobily brand, has attracted more than 6 million users since it started business in May 2005.
STC mobile phone users have risen from some 9 million before Mobily began business to 14 million now, STC officials said. Mobily is an affiliate of United Arab Emirates-based Emirates Telecommunications Corp.
Jasser said STC plans to raise the number of its Internet users from 300,000 at the end of the first quarter to 1 million by the end of 2007. It will soon finalize the purchase of a majority stake in local Internet provider AwalNet. “AwalNet’s deal will increase STC’s market share from 15 to of 35 percent,” the STC official said.
