By Telecom
Lead Team: Bahrain Telecom (BATELCO) did not book any significant returns when
it sold its 42.7 percent stake in STel for $175 million to Sky City Foundation.

 

Batelco
had acquired 42.7 percent stake in STel via two transactions in May and June
2009 for a total of $174.5 million.

 

The
no-profit deal gives alarm bells to investors of the burgeoning telecom
industry. Recently, Airtel said the company’s effective tax rate was 32.5
percent that brought down its net profit to Rs 1011 crore in Q3 2011-12 from Rs
1303 crore in Q3 2010-11.

 

There are
also indications that top Indian mobile players may increase tariffs and few
operators may cut jobs in coming months.

 

According
to Batelco, the carrying value of its equity in STel was $123.3
million as on December 31, 2011. The agreed time-frame for completion of the
sale is the end of October, 2012.

 

STel has
licenses in six of the 22 telecom circles, which have been cancelled by the
Supreme Court. It currently serves to 3.6 million subscribers, which is
just 0.4 percent of the 900 million cellular subscribers in the country. It
ranks 12th among 15 players by subscriber numbers.

 

The fact
that the company could not roll out services in line with MTS India and Uninor
 — both are new licence holders — and add mobile users has reflected in
the valuation of the company.

 

Consolidation
in the telecom industry is important at this point of time. But valuation will
suffer as most of the new operators have not ramped up their infrastructure and
added customers. Top operators would have bought new companies if financial
positions of these companies were healthy.

 

After
spending for 3G spectrum, most of the top companies are unable to leverage
financial markets to raise funds. Consolidation moves will face trouble in the
next 12 months, according to analysts.

 

The
decision to sell was a part of an earlier understanding with Indian partner to
exit, given the circumstances surrounding the 2G probe in India over the past
12 months,” said Shaikh Mohamed bin Isa Al Khalifa, chief executive of
Batelco’s Group.

 

“This
is true even as per their stock exchange disclosures as early as June 2011 when
they had already classified S Tel shares as ‘assets for sale’ in their books.
Subsequently, Siva Group and Batelco discussed the way forward and Batelco
agreed to sell their shares and exit,” said a spokesperson of STel.