Wednesday, October 3, 2007

Omantel - In Play

Omantel issued a disclosure statement to the market earlier today containing the following:

  • The government has agreed to reduce the royalties the company pays from 10% on fixed line and 12% on mobile revenues to a flat 7% effective on 2007 revenues.
  • Omantel and Oman Mobile will be merged.
  • The government is planning to sell part of its stake in the company to a "strategic shareholder with vast experience in the field of telecommunications." While the exact percentage hasn't been announced, it could be as high as 70% of the government's share in the company, giving the new strategic shareholder just under 50% of the company.
The royalty reduction is a huge deal for the company. It would result in a significant increase in the company's net profit. The royalty is taken on the company's gross profit. In other words, the company gave 10% and 12% of gross fixed line and mobile revenue respectively to the government. This is taken right off the top before the company deducts its expenses. Of course, this change in royalty will also have a positive effect on Nawras, which had not reached break even yet. The recalculation of Nawras' income for 2007 based on this lower royalty rate will probably result in an earlier break even. (They had announced last month that October might be their first month to achieve break even). Royalty is not the same as tax. Royalty is paid from gross revenues, and tax is paid from net profit.

The decision to sell part of the government's stake to "strategic investor" is a biggie. The big question here is who this mystery investor is. Are we talking someone with global experience? The are rumors of a big European operator being interest, I can't recall if it's O2 or Orange. Plus Omantel had initially entered the bid for Qatar's second mobile license with Belgacom, so it too could be a possible partner. Other possibilities include regional companies like Etisalat, Kuwait's Zain (previously MTC Vodafone), Oger, or even Egypt's Orascom which is already heavily investing in tourism projects in Oman. Question is why anyone would want Omantel and how much would they want to pay for it?

Don't get your hopes up too high. With our luck in Oman, we'll end up selling our second rate telecom company to a second rate operator.


Arabian Princess said...

Where was this new announced? MSM?

The rumor the merger and the organizational structure has been going for long now ..

I am actually looking forward for the organization to be owned by a stratgic investor .. it will help rise Omantel's effecinecy.

Inshallah khair!

gsm_73 said...

yesterday it appeared in the Arabic version of the exchange's website.
Today they have put the english version.

muscati said...

Omantel's price was limit up today.

Kay said...

Do you think it will continue to go up? or its wise to sell now?

muscati said...

Today demand was much higher than supply so the price will probably continue to go up on Sunday.

I haven't run the numbers to see how much more profit the company will make this year from the decrease in royalty. I think the price could go to 1.7, who knows maybe even more by the end of the year.

Anonymous said...

I think one of the best comments I read on this issue online goes like this:

For the government to even flag the possibility of Omantel buying back some of its share is an admission that original public offering price was too high.

Many investment companies and brokerages were calling for the royalty reduction and the teaming up with a strategic partner from the word go. The question that poses itself now is this: with government stake at 70% and assuming the government will want to retain majority stake at 51%, who will be interested in only 19% of Omantel?!

muscati said...

I think the government might be willing to sell 70% of its 70% stake. When the government started talking about privatizing Omantel oil prices were less than $20 a barrel. Omantel revenue was important to the government. Now with oil heading towards $100 a barrel the government can sell their entire stake to a strategic investor and still get decent income from the 7% royalty and the 12% corporate tax.

Anonymous said...

With the way things work in Oman it will be a major surprise if the government sells its entire share or sell more than 19% to that matter. The buyback statement gives us a hint that the government wants to remain major shareholder. However, buyback is going to be expensive. I expect a private placement and possibly re-structuring of share capital as a more likely outcome - safeguarding government's share whilest providing sufficient attraction to would-be partners. Sure, it will dilute earnings and returns to all, specially the current 30% shareholders :-)

Oh and oil price is a factor but not quite as you point out. Oil production is still on the decline and with major infrastructure projects increasing by the day (cf. recent airport and Duqm announcements) the government will want every baisa they can get.

Unknown said...