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MENAFN - Arab Times - 21/03/2011

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(MENAFN - Arab Times) Kuwaiti telecoms operator Zain will sign a preliminary contract to sell a stake in affiliate Zain Saudi for 950 million by early next week, a Zain source told Reuters on Sunday.

The preliminary agreement will make all sides liable to pay an undisclosed break fee if they back out of the deal, the source said. The Saudi stake sale had been a prerequisite of Etisalat's 12 billion takeover of Zain. Although Etisalat withdrew its offer on Saturday, Zain will still sell its quarter-stake in Zain Saudi to joint bidders Kingdom Holding and Bahrain Telecommunications Co (Batelco), the source said.

"The preliminary contract will be signed within the end of this week or beginning of next week, because the banks (creditors) have to see if they will accept transferring the guarantees from Zain to the alliance," the source said.

Kingdom and Batelco agreed to guarantee part of Zain Saudi's debt last week. Zain Saudi's shares are up 1.4 percent, underperforming Saudi Arabia's index which is up 4.3 percent.

Etisalat blamed the deal's collapse in part on the political unrest roiling the region. It also cited the results of its due diligence process and a lack of unanimity among Zain board members as factors that made its offer "no longer viable," according to statement posted to the Abu Dhabi stock exchange Sunday. It didn't elaborate. "This is quite a disappointment for Etisalat. One of the key planks of their strategy is to try to increase their international revenues," said Matthew Reed, a Dubai-based analyst at Informa Telecoms & Media, a research firm. "If Etisalat had got Zain, that would have represented a big boost to its regional and international portfolio." Zain did not immediately comment.

Abu Dhabi-based Etisalat, known officially as the Emirates Telecommunications Corp., is the second Mideast company to cite regional unrest as a factor affecting a major business decision in recent days.

Kuwait's struggling Wataniya Airways last week stopped operating because of financial problems and what it called a "difficult political and security situation in the region."

Popular uprisings across the Arab world this year have toppled long-ruling regimes in Egypt and Tunisia, and sparked foreign military interventions in Libya and Bahrain.

Etisalat first announced its bid to acquire 46 percent of Zain in September.
In November, it signed a preliminary agreement with a major Zain shareholder, the Al-Khair National Stocks and Real Estate Co, to begin the due diligence process of going through Zain's books. It said at the time its offer was binding but subject to certain conditions.

Al-Khair is owned by the Kharafi Group, a Kuwait-based family conglomerate that had been leading the effort on Zain's side to complete the deal. It holds the largest Zain stake outside the government.

The Kuwait Investment Authority, the country's sovereign wealth fund, owns 24.6 percent of Zain. Zain is officially known as the Mobile Telecommunications Co.


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