The $4 billion, five-year syndicated loan arranged for Kuwait’s Mobile Telecommunications Company (MTC) in May of this year was a landmark for both its size and purpose.
It was the largest single loan transaction in the Middle East after the $6.5 billion financing of Dubai Port World’s takeover of P&O, and the largest ever for a Kuwaiti borrower. The loan acted as a credit facility to finance a future acquisition – MTC had just entered a purchase agreement to buy Vmobile, the third-largest mobile operator in Nigeria – and to refinance part of the company’s debts from its acquisition of Celtel, Africa’s third-biggest mobile phone operator, last year. The financing “worked beautifully”, says Julian van Kan, head of EMEA loan syndications and trading at BNP Paribas.
BNP Paribas, Calyon, Credit Suisse and UBS were mandate lead arrangers on the deal. UBS and Credit Suisse already had a relationship with the firm, having advised it on the Celtel acquisition, and the two French banks were newcomers. In total, 39 banks participated in the syndication. “It was good to get that level of appetite,” says van Kan, crediting MTC’s senior management with bringing the four bookrunners together.
MTC is partly owned by the Kuwaiti investment authority, and has a market capitalization of around $12 billion. It extended operations to other Middle East markets, including Bahrain, Lebanon and Iraq, but remained a regionally-focused company until it bought Holland-based Celtel for $3.36 billion last year. Focusing solely on mobile telephones, the enlarged MTC is now present in countries as far afield as Burkina Faso and Tanzania.
The young company, headed by Saad al Barrak – an engineer who also holds a PhD in management – is widely regarded as representative of a new breed of progressive business managers in the Middle East. Chief financial officer Sam Deeb oversaw the deal, which itself is seen as heralding greater sophistication in regional corporate finance.
A five-year facility is also a rarity in the Middle East, with most corporate loans being for one year. The main challenge was “educating people not familiar with the name and getting them comfortable with MTC as a borrower,” says van Kan. “We couldn’t sell it as a state entity.” The Kuwaiti government reduced its stake in the firm from 49% to 24% in 2001.
The loan was priced at 85 basis points over Libor with MTC leveraged 3.5 times. This was aggressive for a Middle East private borrower. The deal coincided with the launch of a three-year loan for UAE state-owned telecoms firm Etisalat, which was priced at 20 basis points. The pricing reflects “the way the market has moved on the volume side,” according to Giles Borten, head of leveraged finance for Europe at UBS. “It was a good result for the borrower and shows the liquidity on the market.”
Liquidity has remained strong despite the sharp correction in stock indices across the region in the first quarter of the year. The Dubai stock exchange fell by 50% between January and May, as did the Saudi market between February and May. However, the region continues to grow strongly, with Standard and Poor’s predicting growth of 5% this year, with oil exporting markets growing up to three times faster.
“People’s confidence in Kuwait as a re-established market has very much returned,” says van Kan. The syndication included banks from Taiwan, Japan, Germany, Britain and France. Most loans in the Middle East are to banks and financial institutions. Van Kan describes MTC as a fairly unproven global industrial player, that only started operating overseas when it bought Celtel: “Banks are increasingly looking to non-bank credits in the region … they want to diversify from systemic bank risk to industrial risk.”The market looks set to grow, with the “feel good factor” driven by the Middle East’s strong credit ratings, the default-free track record of its companies and financial institutions, and new financial centres like the DIFC. “Through various crises in the international loan market, it has always maintained a very stable environment,” adds van Kan. Lender appetite is strong enough that, even for riskier private borrowers, spreads will remain fairly tight.
Meanwhile, the growth of Islamic finance provides “incremental liquidity” from local institutional investors, says UBS’s Borten. “There’s a definite crossover between those two markets,” he says. Many borrowers are using both types of financing. MTC, for example, signed a $750 million murabaha facility in February, arranged by six Arab banks.
On regional political risk, Gulf businesses, well capitalized by the region’s petrodollar windfall, are seemingly immune from conflicts and instability in other countries. Some are in a position to benefit: MTC, as a mobile operator in Iraq, has moved into a market created by the destruction of the country’s telecoms infrastructure. Gulf governments understand the need for foreign lenders and encourage foreign banks to operate there. “People are discerning enough to realize where the conflicts are,” says UBS’s Borten. “The risks are the same as for any other corporate entity: the markets in which it’s doing business.” The mobile telecoms market has proven resilient. Borten adds: “It’s a pretty exciting time for these guys.” —Maria Ahmed
Issuer: Mobile Telecommunications Co., (MTC)
Date of launch: May 2006
Amount: $4 billion
Maturity: June 2011
Joint lead managers: BNP Paribas, Calyon, Credit Suisse, UBS