By Matt Smith
Etisalat has signed a 3.15 billion euro (2.59 billion pounds) facility to fund its purchase of Maroc Telecom, opting to borrow rather than use cash to exploit low interest rates and maintain dividend levels, its CFO said.
The Gulf's No.2 telecom operator by market value expects to conclude its first major acquisition of the decade by the end of May, having agreed to pay 4.2 billion euros for Paris-listed Vivendi’s 53 percent stake in Maroc Telecom.
Etisalat opted to borrow to fund the acquisition despite having a net cash balance of 13.3 billion dirhams (2.14 billion pounds) as of the end of March.
"The cost of debt is very low so we thought it would be wise for Etisalat to leverage the balance sheet to optimise the capital structure," Serkan Okandan, Etisalat's chief financial officer, told Reuters in a telephone interview.
He said such borrowing would also enable Etisalat, which posted an 11 percent rise in first-quarter profit on Sunday, to maintain dividends around current levels. It paid 0.35 dirhams per share for the second half of 2013.
The new facility consists of a 2.1 billion euro one-year bridge loan, priced at Euribor plus 45 basis points for the first six months. This then increases by 15 bps in each of the following three months, it said in a bourse statement on Monday. The second part is a 1.05 billion euro three-year loan priced at 87 basis points above Euribor. Although Etisalat priced the loans in euros, they can also be utilised in dollars, the statement said, adding 17 local, regional and international banks were financing the facility.
Government fund
On Sunday, Reuters reported that an Abu Dhabi state-owned fund would finance a quarter of Etisalat's purchase of the Maroc Telecom stake, thereby reducing Etisalat's contribution to 3.15 billion euros.
"We cannot comment for the moment," said Okandan when asked to confirm the role of the Abu Dhabi fund. "In May, within a few weeks, we are hoping to close the transaction and at the close we will announce the specifics of this structure. Even without an investor, we have enough cash to top up the 1 billion euros.”
Morocco's takeover rules require Etisalat to make a buyout offer for Maroc Telecom's minority shareholders - the government owns 30 percent, with the remaining 17 percent of the company openly traded on the stock exchange. The price per share could be different to that agreed with Vivendi, analysts have said.
When asked if Etisalat might borrow more to fund a minority buyout, Okandan said "it depends on the mandatory tender offer (MTO), which may be launched after the closing in Morocco."
Former monopoly Maroc Telecom also has operations in Gabon, Mauritania, Burkina Faso and Mali, while Etisalat subsidiary Atlantique Telecom has operations in several African countries including Ivory Coast, Niger and Togo.
Okandan declined to comment on whether Maroc Telecom, which has made a better fist of sub-Saharan Africa, would take over the management of Atlantique as suggested by some analysts.
"Whether under Maroc Telecom or not, we will continue to consolidate Atlantique Telecom [in our results]," he said.
Etisalat has made capital commitments of 5.07 billion dirhams for 2014, down 7 percent on 2013. This year’s expenditure will largely be spent in the UAE, Egypt and Pakistan, Okandan said.
