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Etisalat given five-year staggered payment option on PTCL deal

DUBAI — In a move to salvage the botched $2.6 billion sale of a 26 per cent stake in Pakistan Telecommunications Company (PTCL) to the UAE telecom operator, Pakistan yesterday agreed to a staggered payment structure for up to five years, one of the key issues raised by Etisalat.

A Pakistan telecommunication official was quoted as saying that the government has agreed in principle that Etisalat would not be able to make its remaining $2.34 billion payment in a single go. "We now accept the need for a staggered payments over a few years and negotiations are continuing," he was quoted by the Financial Times.

An Etisalat spokesman, however, did not confirm or deny the latest development, which marked shift in Pakistan government's policy. "We stand by our policy of not making any comment until we have something to say," he told Khaleej Times.

Etisalat, which offered to pay $2.6 billion, a price critics say was far higher than the market value of the 1.3 billion shares of PTCL, and more than $1 billion higher than the second bidder, had raised several issues to end the three-month deadlock, which started when it failed to deposit the funds required to complete a deal in August. Those included deferred payment structure; ability to pledge the acquired shares; right to increase shareholding via a ‘call option’ for additional ‘A’ class shares; allowing dual listing of PTCL shares in UAE; management agreement; exemption from withholding tax; waiver of duties & taxes; custom duty waiver and ability to transfer acquired shares."

According to market analysts, Etisalat’s dilly-dallying on the transaction, hailed as a landmark move by Pakistan in its privatisation programme, could be ascribed to, apart from higher bid price, was a belated concern about the risk associated with the investment. Another reason pointed out by analysts has been PTCL’s sudden although not unexpected deterioration in financial performance.

Etisalat had won the bid for 26 per cent of PTCL shares and management rights on June 18 for $2.59 billion, surpassing China Mobile's bid of $1.4 billion ($1.066 per share) and Singapore based SingTel's bid of 1.16 billion ($0.88 per share). With this purchase Etisalat was to get 58 per cent voting rights on the board of directors and a 26 per cent stake of PTCLs profits.

Although both sides have been holding a series of meetings to break the deadlock, analysts say little progress has been achieved over the past three months.

According to some UAE sources, apart from payment deferments, which is now agreed by Pakistan, Etisalat will also be seeking to obtain a slashing of the original bid price.

However, analyst pointed out that Pakistan government will not agree to renegotiate the price as that would set a bad precedent for future privatisation deals. "Talks are going on. There are some complexities, which we are discussing now. Some solution will be coming soon," a Pakistan government official was quoted as saying.

Analysts say that under the rules of Pakistan's privatisation process, if the Etisalat talks are declared a failure, Islamabad will ask the second highest bidder to match the first bidder's price, and then ask the third highest bidder. If both bidders refuse — which would seem likely - the government could hold a fresh auction. After the Etisalat debacle, a second auction might not receive bids as high as the first one.

They said the uncertainty over the PTCL's privatisation could hurt the company by preventing it from forming long-term business plans in an increasingly competitive telecommunications sector.