Skip to content Skip to Search
Skip navigation

Gulf telcos nurse FX losses as foreign expansion sours

e& Vodafone Reuters/Jumana El Heloueh
e& will continue to focus on supporting Mobily as its largest shareholder
  • Zain, Etisalat, Ooredoo have all expanded overseas
  • Losses incurred in Turkey, Pakistan, India, Nigeria, Indonesia
  • Poor earnings exacerbated by Gulf countries’ dollar peg

Gulf telecom operators have suffered multi-billion-dollar currency losses arising from their foreign subsidiaries.

They would have to recognise these in their income statements should they ever sell or lose overall control of the units in question.

As mobile penetration in their home markets topped 100 percent – meaning there were more mobile subscriptions than residents – many Gulf former telecom monopolies expanded abroad from the 2000s onwards.

This was funded by cheap borrowing and huge cash surpluses.

The companies bought licences or existing operators in countries from West Africa to East Asia.

Expansions into other Gulf markets, which had similar demographics and regulators that prioritised protecting industry profits over consumer interests, proved largely successful.

However, forays further afield have mostly failed to deliver the expected returns.

In all, between them Gulf ex-monopolies have lost tens of billions of dollars buying into the likes of Indonesia, Turkey, Pakistan, Nigeria, and India.

The countries were all attractive in theory thanks to their huge populations and low take-up of mobile services.

Many foreign subsidiaries have been sold, but some that remain continue to cause financial headaches – especially from a foreign exchange (FX) viewpoint.

Prolonged dollar strength versus emerging market currencies has exacerbated these woes.

Costly investments to build high-tech telecommunications networks – usually funded at group level or through dollar borrowings – have not generated sufficient revenue to justify the outlays.

The Gulf’s various dollar pegs means that earnings from subsidiaries outside the region have been much reduced when converted into the group’s reporting currency – be it dirhams, riyals or dinars.

For example, as of December 31, Kuwait’s Zain ($4.9 billion), UAE’s Etisalat ($2.7 billion) and Qatar’s Ooredoo ($1.9 billion), all have FX losses sitting in their equity arising from certain foreign operations.

If they were to sell or lose control of these units, they would have to book these losses in their income statement.

Stuck with assets

That means the trio are effectively stuck with these assets for the time being, says Neetika Gupta, head of research at Ubhar Capital in Muscat.

“They can always justify retaining these companies by highlighting the commercial partnerships and benefits from increased scale these acquisitions have enabled, as well as expanding their geographical presence,” she said.

“As long as the underlying asset is performing well in local currency terms, as an analyst I wouldn’t be too worried. This could prove to be only a short-term blip.

“What’s more important is that they’re growing the subscriber base and revenue-per-user is increasing.”

Zain’s foreign currency losses equate to more than seven times last year’s annual net profit and mainly arose from its operations in Sudan and South Sudan.

Abu Dhabi-based Etisalat, which rebranded as e&, operates in 16 countries in the Middle East, Asia and Africa.

Its FX losses are largely from Pakistan and Egypt, analysts believe, after the two countries suffered a steep drop in the value of their currencies.

Qatari Ooredoo’s FX losses mainly arose from movements in the currencies of Kuwait, Tunisia, Algeria, Iraq, Myanmar and Indonesia.

Policy dangers

Omar Maher, a telecoms analyst at EFG Hermes in Cairo, says the Gulf trio were not necessarily trapped with the FX loss-making units.

“Wherever they deem they’re capable of operating in a country they will persevere despite the FX losses and macroeconomic challenges,” explains Maher.

“But if a market’s fundamentals or operating environment are no longer viable they will look to leave. They haven’t done that because most of their markets are fundamentally attractive in the long term.”

Analysts are unsure just how much money the parent Gulf telecom operators such as Etisalat, Zain and Ooredoo lent to their foreign subsidiaries because such loans are not declared on their financial statements.

With equipment manufacturers requiring payment in hard currency, these are likely to be substantial.

As well as economic risks from investing in frontier markets, the Gulf operators also failed to adequately anticipate potential policymaking dangers.

For example, new licences could be granted to rival companies, extra taxes levied with little warning or additional fees demanded for new radio frequencies.

“They (Gulf operators) have taken a pause (in acquisitions) in the last few years as the higher growth was accompanied by a host of negative factors,” says Nikhil Mishra, senior research analyst at Al Ramz Capital in Abu Dhabi.

“These operators became increasingly more cautious of making any such moves and focused on consolidating and exiting some markets.

“In all, the operators have realised that higher growth in these markets might be appealing, but comes with its own set of problems.”

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 […]