Sale of Pakistan Telecom finally a done deal

Five years after first announcing the transaction, the Pakistan government finally sells a strategic stake in its leading telco.
The Pakistan government finally announced the sale of a 26% equity stake and management control in Pakistan Telcommunications Company Limited (PTCL) on Sunday (March 12). The stake has been sold to UAE's Etisalat (also known as Emirates Telecommunications Corporation), which currently operates in UAE, Saudi Arabia and the Sudan.

Goldman Sachs and JPMorgan advised the government on the sale, which has been ongoing since June 2001. The government will continue to hold 62% and retail investors the remaining 12%.

Etisalat first won PTCL through an auction in June 2005. However, it has been subject to a series of delays since then.

Having paid a first instalment of $260 million, Etisalat was unable to follow through with a second instalment in October 2005, which prompted concerns the deal would fall through.

But in December, the company reached an agreement with the government whereby it would pay $1.14 billion on transfer of PTCL and the remainder of its $2.598 billion bid price in nine equal instalments over a five-year period. One month later, PakistanÆs Minister for Privatization Dr. Abdul Hafeez Sheikh told the Senate that the government chose to re-negotiate terms with Etisalat rather than invite in another bidder as the latter had bid $1.2 billion more than the second highest bidder.

PTCLÆs performance has been under pressure since the country ended the companyÆs 56 year monopoly on fixed lines in 2002 and competitive pressures forced it to drop tariffs. It operates more than 4.5 million fixed lines and has two wholly owned subsidiaries, Pakistan Telecommunication Mobile Company (known as Ufone) and Paknet.

Ufone is one of six cellular service providers in the country. Competition in PakistanÆs mobile sector intensified in 2005 with both Telenor, Norway and Al-Warid (backed by Abu Dhabi based investors) launching services within weeks of each other.

This is one in a series of investments from the Gulf countries in Pakistan, signalling how the rich oil producing nations are looking to expand their geographical reach . Others which have shown interest in acquiring the stake at different stages in the PTCL privatization include: Oger and Saudi Telecom both from Saudi Arabia; SingTel; Mobile Telecom Kuwait; China Mobile; MTN, South Africa and Telekom Malaysia.

Both China Mobile and SingTel were in the fray until the very end. Telecom majors were all keen to acquire an established based in a country where tele-density was forecast to stand at only 10% at the end of 2005 hence showing tremendous potential for growth.

After launching the privatization process for PTCL in 2001 Pakistan was forced to delay the sale in 2002 citing the depressed telecom sector situation globally. Other reasons attributed to the delay at the time, which the government denied, included inadequacy of telecom regulation in the country and border tensions with neighbouring India.

The Cabinet Committee on Privatization, which approved the transfer to Etisalat has also been discussing upcoming transactions for Pakistan State Oil, Pakistan Steel Mills and State Life Insurance. This had led a number of observers to hope that PTCL's sale could be just the first in a series of disinvestment related announcements from the country.