Thursday, October 04, 2007

Omantel - In Play

This is cross-posted from Oman Community Blog

Omantel issued a disclosure statement to the market late yesterday evening containing the following information:
  • The government has agreed to reduce the royalties the company pays from 10% on fixed line and 12% on mobile revenues to a flat 7% effective on 2007 revenues.
  • Omantel and Oman Mobile will be merged.
  • The government is planning to sell part of its stake in the company to a "strategic shareholder with vast experience in the field of telecommunications." While the exact percentage hasn't been announced, it could be as high as 70% of the government's share in the company, giving the new strategic shareholder just under 50% of the company.
The royalty reduction is a huge deal for the company. It would result in a significant increase in the company's net profit. The royalty is taken on the company's gross profit. In other words, the company gave 10% and 12% of gross fixed line and mobile revenue respectively to the government. This is taken right off the top before the company deducts its expenses. Of course, this change in royalty will also have a positive effect on Nawras, which had not reached break even yet. The recalculation of Nawras' income for 2007 based on this lower royalty rate will probably result in an earlier break even. (They had announced last month that October might be their first month to achieve break even). Royalty is not the same as tax. Royalty is paid from gross revenues, and tax is paid from net profit.

The decision to sell part of the government's stake to "strategic investor" is a biggie. The big question here is who this mystery investor is. Are we talking someone with global experience? The are rumors of a big European operator being interest, I can't recall if it's O2 or Orange. Plus Omantel had initially entered the bid for Qatar's second mobile license with Belgacom, so it too could be a possible partner. Other possibilities include regional companies like Etisalat, Kuwait's Zain (previously MTC Vodafone), Oger, or even Egypt's Orascom which is already heavily investing in tourism projects in Oman. Question is why anyone would want Omantel and how much would they want to pay for it?

Don't get your hopes up too high. With our luck in Oman, we'll end up selling our second rate telecom company to a second rate operator.

Update: Omantel's stock price jumped 10% (limit up) in Thursday's trading.

Related posts:

Bad Bad Omantel Shares
Omantel IPO

2 comments:

illogicist said...

First question to come to mind is: will we see lower prices?

Se7en said...

doubt it, until another fixed line / internet operator comes into play.. Omantel (either Government owned or Etilsalat) will continue to try to maximize their profits through their monopoly. The company may become more efficient, offer new technologies, good news for the stockholders but thats about it i guess.