Mobile Telecommunications Company Saudi Arabia (Zain) announced late on Sunday that it had decided not to sell its towers to IHS Holding Limited for regulatory reasons, triggering a sharp drop in its shares on Monday.

Zain received a letter from Saudi Arabia’s Communications and Information Technology Commission (CITC) stating that IHS did not meet the regulatory requirements and did not obtain the license required to lease and purchase Zain Saudi’s towers.

Zain first said back in 2016 that it was exploring the sale of its passive tower infrastructure. In August 2017, the company announced that its board of directors decided to enter into exclusive negotiations with a consortium led by IHS Holding Limited and Towershare Management Limited for the sale and leaseback (SLB) of its towers. In November 2018, it announced that it had agreed a 15-year deal covering the sale and leaseback of 8,100 towers worth 2.43 billion Saudi riyals ($647.7 million). (Read more here).

The proceeds were due to be used to reduce its Islamic financing (Murabha) commitments, and its cancellation could “have a negative effect on the company's solvency on the long run,” Hassan Abdelgelil, a telecom analyst at CI Capital told Zawya by email.

Abdelgelil said that Zain’s “ability to settle the Murabaha facility, due in 2021 and extendable to 2022, is now highly questionable, given (that) the company also has 3.38 billion riyals payable to the Ministry of Finance starting 2021.”

Abdelgelil said that following the cancelled deal, he expects Zain KSA “to look for another source of funding”, such as reviving a plan to increase its capital that was previously put on hold due to changes in the company’s structure and a lower accumulated deficit. Alternatively, it could look for a new buyer for the towers, but he said this process “might be lengthy”.

“It is worth mentioning that Zain KSA has advances from Zain Group worth 6.34 billion riyals, as of 1Q19,” he added.

Zain Saudi’s shares were last trading 5.06 percent lower at 12 riyals by 12:46 GST on Monday. The cancelled deal announcement came following market closure on Sunday.

“With or without the tower SLB deal, we believe Zain KSA is overpriced, trading on a 2019 EV/EBITDA of 7.8x vs. the regional peer average of 5.0x,” he said, adding that the EBITDA figure used was calculated after normalising earnings to account for a non-cash reversal of government charges.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(gerard.aoun@refinitiv.com)

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