Etisalat takes over Pakistan Telecom in a milestone deal

Prime Minister Shaukat Aziz is overjoyed over the deal that he describes as "a milestone," and "a defining moment " because it brings UAE and Pakistan still closer together. It is the single largest transaction ever finalised in the country’s privatisation history. "It will strengthen Pakistan-UAE economic, defence, trade, investment and political relations, as it has the underlying potential to promote bilateral relations between the two countries," Aziz says. Etisalast will also bring in new technology and world class experience to the Pakistani telecom sector." Th deal between Etisalat and Pakistan is a clear example of investment-friendly policies of the government," he also said, at the signing ceremony.

Etisalat will take over management control of Pakistan’s telecom giant on the basis of its purchase of 26 per cent shares for $ 2.598 billion. Etisalat, by offering $ 1.96 a share was the highest bidder for 1.326 billion shares in the June 18, 2005 bidding at the Privatisation Commission of Pakistan.

It had surpassed its two competitors—China Mobile (Hong Kong) Ltd that had bid at $1.06 a share and Sing Tel of Singapore’s $ 0.88 a share.

Etisalat had later asked Pakistan to revise the financing and payment plan, and had put in additional conditions for the deal to go through. Presidents of UAE and Pakistan, as well as Ambassadors of the two countries, worked closely to get the original plan revised, culminating in this week's signing of the second and final agreement.

The final deal was signed by Etisalat Chairman and CEO Muhammad Hassan Imran and Tehsin Iqbal Khan, Secretary of the government’s Privatisation Commission in the presence of Prime Minister Aziz, Privatisation Minister Abdul Hafeez Shaikh, Foreign Secretary Riaz Mohammad Khan, UAE Ambassador to Pakistan Ali Muhammad Al-Shamsi, and Pakistani Ambassador to UAE Ehsanullah Khan.

The revised payment plan envisages that Etisalat will pay the Government of Pakistan $1.4 billion up front in the next four weeks and will take over the management control of PTCL. It will pay the balance of $ 1.2 billion in nine equal six monthly instalments, Privatisation Minister Abdul Hafeez Shaikh said.

The Cabinet Committee on Privatisation approved the deal on January 6, and amended the payment structure as desired by Etisalat. According to the new plan, Etisalat will complete the full payment of $ 2.6 billion by 2010. Shaikh also said, Pakistan’s privatisation sales, inclusive of PTCL have earned the government Rs 285 billion over the last three years.

Speaking at the signing ceremony Aziz said, "this transaction is a manifestation of close cooperation between the two brotherly countries — UAE and Pakistan — and it will bring ties between the two countries even closer. We have created a win-win situation for the stakeholders and we hope that PTCL, under the Etisalat management, will turn into an excellent entity and a source to attract more investors in IT and telecom sectors in Pakistan." It will also help further expand the telecom system to meet the growing demand of the people.

Aziz said, "this transaction shows interest of the foreign investors in Pakistan’s future, particularly in the telecom sector. I am sure, Etisalast with its management skill, will turn PTCL into a greater and valuable asset and increase its value through innovation, expertise and sharing best practices. … Signing of the deal is a quantum leap in the economic relationship of our two countries."

Etisalat will group will franchise PTCL to use Pakistan as an outsourcing venture so that people here can help improve profitability at large. Millions of people who are experienced, competent and energetic can join the network. The government of Pakistan will fully help Etisalat achieve success. Since the government will have 62 per cent shares of PTCL after sale of 26 per cent to Etisalat, Islamabad will be striving for its success. " You do well, we do well," he said to the Etisalat Chairman and executives.

Imran said, " Etisalat will do its best to serve the Pakistani community and consumers after taking over the management of PTCL. We will make sincere efforts to achieve the targets of progress and prosperity.…We are committed to achieve our targets of good service with dedication and hard work and make the PTCL a more vibrant organisation. It will become a new source of cooperation between the people and governments of both the countries."

He also said, services of PTCL employees will be ensured. "We will take full advantage of the experience and knowledge of the Pakistani employees. Etisalast has been working in Saudi Arabia, Sudan and many other countries and we want to expand our business activities globally, and will utilise the potential of PTCL employees."

Pakistani telecom market is expanding fast. Pakistanis now have 24 million mobile or cellular phones — one among every seven, in a population of 155 million. Half of this number was the addition only in 2005. The number has been doubling each year in recent past. Pakistan spent $ 600 million in cellular phone imports in fiscal 2005 alone. The cautious estimates of telecom market investment over the next two or three years is $10 to 15 billion. The latest arrival on the cellular scene is Al-Warid of UAE.

Shaikh Nahyan bin Mubarak Al Nahyan’s Abu Dhabi Group (ADG) started Al-Warid in Pakistan in May, 2005 with a $400 million state of the art, highly innovative and aggressively competitive cellular service. ADG had already invested in banking, real estate and telecom, including long distance and international (LDI) and wireless local loop (WLL). The ADG has also invested $ 170 million in the modern, aggressive, fast expanding and high-dividend Bank Al-Falah Ltd., $104 million in United Bank Ltd., and $100 million in Wateen Telecom (Pvt) Ltd. Now with Etisalat buying into PTCL, UAE has a dominant role in Pakistani telecom market.

U-Fone, the country’s second largest cellular phone company is a subsidiary of PTCL which owns it 100 per cent. PTCL has been the state telecom monopoly till recently and continues to be the largest provider of telecom services from fixed line phones to internet, and wireless telephony to equipment producer. It operated 5.052 million fixed telephone lines until March, 2005, while the number now is close to 6.0 million.

The present IT spending in Pakistan is $700 million a year, which is quickly moving $1.0 billion. Its exports of high quality software and services are $100 million a year.

Pakistan looks at PTCL as a hub for Etisalat to use profit transaction from other countries. Etisalat has a large human capital which will help it use Pakistan as a key outsourcing base. Islamabad is of the view that since a large number of Overseas Pakistanis are already living and working in UAE, Saudi Arabia and other parts of the Middle East they can contribute to Etisalat’s outsourcing work also because the company has large operations in those countries. The government and telecom experts here believe that the future of PTCL, IT and telecom are extremely bright, and dividend rate high.