I feel heartburn bursting from deep inside me. It just pisses me off whenever individuals/companies act unethically simply because they are not breaking any law (obviously because there aren’t any laws in Kuwait!). Now what’s going on with Zain goes beyond heartburn and makes me want to puke. Why? The most prominent company in the KSE is up nearly 100% and we DON’T know exactly why or what’s going on. One day it want to become one of the top 10 companies in the world. The next day it reverses its stance and wants to sell its potentially most lucrative African region. And the following day rumors emerge that the majority of the company will be sold to Etisalat (UAE)! Meanwhile, the stock continues its rise and, well, someone big starts to sell big:
According to Bloomberg data, AL KHAIR NTL ST & REAL (Kharafi Co.) sold 76,531,883 shares as of 8/17/2009. This brings their holding down from 13.35% to 11.15%. If the stock wasn’t a screaming sell just like alpha dinar has been recommending, why would THEY sell?! Anyways, in our Islamic tradition divorce is sealed by repeating “Divorced” three times. I am now officially divorcing Zain by stating “SELL SELL SELL” three times!
1st Sell:
Operationally speaking, Zain is in a corner. From an aggressive acquirer to a helpless seller, Zain’s fortunes have dramatically changed. “It’s a wonderful world” Zain’s commercials repeats, but financial statements say the opposite. The company is heavily indebted, facing fierce competition, and its management wasted half its 4.5B capital raise on expensive share buybacks. The introduction of Viva in Kuwait is pressuring the company’s earnings (more than 50% of Zain’s net income is from Kuwait). With the ability to transfer numbers between providers coming soon, this will only add insult to Zain’s injuries. As for selling Zain Africa, it will be an operational blow for the company. Zain Africa’s EBITDA CAGR growth is supposed to yield 26.2% between 08-10. If they sell it, Zain shareholders will be stuck with mature competitive GCC markets which will warrant a low multiple.
2nd Sell:
Valuation. Valuation. Valuation! The stock is expensive whether compared to its historical P/E, regional, and/or international peers. Mind you the company is supposedly downsizing (selling parts), so its P/E should be lower due to the declining nature of its growth levels. What will they do with the proceeds? Grow or pay down debt? Its obvious. Its as simple as this: the share price already MORE THAN reflects the optimal scenario of selling the African operations for a huge premium. I’m not alone in this as all most recent sell-side analyst reports agree: HSBC rates Zain as (Underweight with a target price of KD 1.100), Shuaa Capital rates it as (Sell “KD 1.070″), and Bank of America/Merrill Lynch rates is as (Underperform “KD1.180″). Even Al-Khorafi is selling..
3rd Sell:
Some investors are thinking: what if Zain sells a majority interest to Etisalat for KD2, KD3, or even KD4. That is definitely a risk worth taking, right? WRONG. If Zain sells a majority interest, minority shareholders will not get KD2, K3, or even dream of KD4. ONLY the majority sellers (in this case a consortium of Khorafi-KIA) will reap the rewards! Remember Wataniya Telecom? A majority interest was sold to Qatar Telecom by shareholders led by Kuwait Projects Co. for KD 4.600! At the close of trading on the day the deal was sealed, Wataniya Telecom was trading at KD 3.020- which translates into a KD 1.580 difference. Majority shareholders of Wataniya earned a more than 50% greater return than minority shareholders!
I know what you are thinking- life is unfair. Wake up from your euphoria Zain minority shareholders and SELL SELL SELL..
(No Ratings Yet)
Loading ...Tags: Al Khair Khorafi, Al-Kharafi, Etisalat, Expensive Zain, GCC, KIA, Kuwait, Kuwait Investment Authority, Sell Zain, UAE, Viva, Wataniya Telecom, Zain, Zain Africa, Zain Africa Sale, Zain Kuwait, Zain Majority Sale
Makes sense. Great article.
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good article
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شركة الخير الوطنية للاسهم والعقارات وآخرين / 10.321
Al-Kharafi ownership down another 1% from 11.15%!
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I guess Khorafi will sell its majority interest in Zain. Nothing warrants the spike in NIC from sub 300 fils to above 600 fils other than this conclusion!
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Pro rata? Last year they promised this… what happened now?
I’ll tell you what I think made them forget it, the owners are bailing out on Zain because they would get a much needed cash injection to cover some of their (frozen for now) margin calls on their stakes in a number of companies.
Zain, surprise surprise, is an expendable investment and the reasons are eloquently explained in the above article. In a time of crisis, the major shareholders could not even dream of a more appropriate exit strategy.
As for Al-Khair’s holdings, it would be outright stupid of them if they actually sold the 70+ million shares to the market, especially when there is a buyer willing to buy their holdings at an even higher premium. Something is cooking here, I bet there is a plan with that selling.
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keynesian09 Reply:
August 29th, 2009 at 9:44 am
I guess Al-Khair is trying to mix signals and confuse speculators. They actually went back and bought the stake they sold according to the most recent filing ! Look below:
شركة الخير الوطنية للاسهم والعقارات وآخرين /% 11.041
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Wow.. golden words
how true
excellent article
now there is one more bogeyman wanting to buy the stock at KD 2
see this
http://economictimes.indiatimes.com/News/News-By-Industry/Telecom/BSNL-MTNL-say-wrong-number-to-Kuwaits-Zain/articleshow/4992607.cms
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Adel Reply:
September 10th, 2009 at 8:09 pm
Thanks! Great link! OMG I can’t believe these guys are bailing out! It makes me want to cry AND laugh at the same time. It may sound like a weird combination of feelings, but if you follow the Kuwaiti issues you’ll get used to it!
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That is really insightful. It presented me several ideas and I’ll be writing them on my web site eventually. I’m bookmarking your site and I’ll be back. Thanks again!
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