Skip to content Skip to Search
Skip navigation

Risk-averse Gulf telecom companies look to Europe

Saudi's STC Group purchased 9.9% of Spain's Telefonica for $2.25bn but 5% is in derivatives Reuters
Saudi's STC Group purchased 9.9% of Spain's Telefonica for $2.25bn but 5% is in derivatives
  • STC buys 9.9% of Telefónica
  • Tawal bought 4,800 telecom towers in Europe
  • Investments in Asia and Africa did not pay off

Following myriad lacklustre investments in Asia and Africa, some former telecom monopolies in the Gulf are now buying minority stakes in long-established operators in Europe to provide lower-risk, dividend-based returns.

STC Group, previously known as Saudi Telecom Co and majority-owned by the kingdom’s Public Investment Fund, this week revealed it had spent 2.1 billion euros ($2.25 billion) to purchase 9.9 percent of Spain’s Telefónica.

STC said it did not want to take control of Telefónica, which also has operations in Germany, the UK and Brazil. Instead it called the acquisition “a compelling investment opportunity to use our strong balance sheet whilst maintaining our dividend policy”.

The company has a “cash arsenal” of around $5.97 billion, according to EFG Hermes calculations. 

STC’s subsidiary, Tawal, recently purchased 4,800 telecom towers across Bulgaria, Croatia, and Slovenia from the Netherlands’ United Group.

The investment in low-growth European markets follows a similar strategy to UAE rival E&, formerly known as Etisalat.

Over the course of about a year, it bought a 14.6 percent stake in the UK’s Vodafone and agreed to acquire a 50-percent-plus-one-share stake in Czechia-based PPF Group’s telecom assets in Bulgaria, Hungary, Serbia and Slovakia.

Failed investments

Before they looked to Europe, both Gulf operators had previously bet big on developing markets from the mid-to-late 2000s, snapping up licences and rival telecom companies in countries from sub-Saharan Africa to Southeast Asia.

These acquisitions enabled the companies to claim a vast geographical footprint as well as tens of millions of subscribers but added little to their bottom line.

Operating in highly competitive, low-margin markets with consumer-friendly regulators proved tougher than anticipated and they wasted billions of dollars.

For example, the then-Saudi Telecom Co in 2008 paid $2.6 billion for 35 percent of Dubai-based Oger Telecom. Oger, in turn, owned 55 percent of Turk Telekom.

Oger is in the process of being liquidated. It defaulted on a multibillion-dollar loan and eventually agreed to sell its stake in Turk Telekom for $1.65 billion.

STC should receive $578 million, according to AGBI calculations, meaning it will lose around $2 billion. The Saudi company also made sizeable losses on ill-fated investments in Malaysia, Indonesia and India.

E&, meanwhile, has lost more than $3 billion entering India and Pakistan and suffered failures elsewhere, including in Nigeria. This is despite these countries’ demographics offering great promise for telecom services.

E& has operations in 16 countries but generated 60 percent of its second-quarter revenue from the UAE. STC’s foreign units, meanwhile, provide little to the company.

So, the duo have now seemingly switched strategy, taking minority stakes in long-established European operators.

Potential pitfalls

​​“We believe the rationale to invest in higher-yield businesses is good, especially that Telefonica represents a significantly lower risk profile compared to STC’s unsuccessful emerging market-focused transactions over a decade ago,” EFG Hermes telecom analysts wrote in a client note.

“However, the fact that STC had unsuccessful deals in the past might leave investors somewhat concerned about STC returning to big-ticket international M&A.”

Pitfalls await Gulf investors in telecom operators in Europe, too. Vodafone’s shares have slumped to 26-year lows, giving E& a paper loss of more than $2 billion on its investment.

Investors seem unconvinced, and the UAE company’s stock is down by more than half since April 2022.

STC’s shares have fallen by about one-third from a June 2021 high. It may believe it is buying Telefonica at an attractive price.

The Spanish company’s shares are down by more than half since late 2018. Yet its price-to-earnings ratio is 14.35, according to Google Finance, indicating it is hardly a bargain.

“For STC it will provide good dividend yield, while we for now do not see any other strategic benefit for the telco,” Nishit Lakhotia, head of research at Bahrain’s Sico investment bank, wrote in a note to clients.

“However, as we have seen from Etisalat’s (E&) example, share price and currency volatility remains a risk.”

Latest articles

Turkey foreign property sales

Foreigners turning back on Turkish real estate

Foreign buyers are increasingly shunning the Turkish property market, wary of high prices, the expensive cost of living and a less welcoming environment for overseas real estate investors. There were only 2,064 residential units sold to foreign buyers in May, 35 percent down on the same month last year, data issued by the state statistics […]

2KEY8G1 Emirates Airline Airbus A380 aircraft landing. Aerial view of Emirates Airlines A380-800 airplane. An Emirates plane coming in to land at LAX; a spokesperson for Emirates said the contraventions were for safety reasons

US fines Emirates for operating in prohibited airspace

Emirates has been fined $1.5 million by the US Transportation Department for operating flights carrying JetBlue Airways’ JBLU.O designator code in prohibited airspace. The transportation department said that between December 2021 and August 2022, Emirates operated a significant number of flights carrying the JetBlue Airways code between the United Arab Emirates and the United States […]

Egypt will use the US funding across a range of sectors including agriculture

US allocates $130m development funding to Egypt

The US has allocated funding of $130 million for a range of developmental projects in Egypt, it was announced on Thursday. In a press release published by the US Embassy in Cairo, ambassador Herro Mustafa Garg said that the money would go towards “advancing Egyptian efforts to achieve a brighter, healthier, and more prosperous future […]

Hollywood actor Leonardo DiCaprio. A US VC fund backed by him plans to invest $50m in Mena climate tech startups

US firm to invest $50m in Mena climate tech

A US venture capital firm backed by Hollywood actor Leonardo DiCaprio plans to invest $50 million in Mena climate tech startups over the next five years. Princeville Capital is targeting mature startups with strong growth potential, facilitating quick exits and a clear path to profitability, its co-founder Joaquin Rodriguez Torres told AGBI. The firm has […]