Saturday, November 24, 2007

Omantel spends large on strange Pakistani Company

What's going on with Omantel? Their 'great deal' seems to be a huge payment to a local businessman for a not very impressive minor Pakistani Telecom compnay.

Many of you will have read that Worldcall Telecom says it has accepted the offer of Oman Telecommunications (Omantel) to buy 60% of its shares, in a deal worth 11.3 billion Pakistani rupees ($185.6 million). Omantel will acquire 60% of Worldcall at 25 rupees per share, the company said in a notice to the Karachi Stock Exchange seen by Reuters on Wednesday.

As part of the deal, Omantel also has to acquire an additional 5% from those shares publicly traded.

What’s the real story? It seems more than a bit fishy.
Is this a good deal for Omantel Shareholders? The shares traded recently at about 18 rupee/s, so Omantel is paying a 40% premium to acquire the company vs traded prices. They are paying a 17% premium vs it’s peak price over the past 12 months of 21.30, which only occurred as the share price spiked following the rumours of Omantel’s interest that emerged in May this year. Until early this year when the Omantel deal leaked the share price was just 10Rupee. So Omantel in its wisdom is paying 250% more than the company was valued at early this year! And since then the company has actually performed much worse than in 2006.

The company has never paid a dividend, so its hard to get a P/E ratio. However, the latest 2007 results aren’t pretty – Earnings before tax from on-going business fell from 898mlnRupees to 358mlnRupees and revenue was flat. By my calculations, this means Omantel has paid an effective P/E of more than 50 times core earnings for a company in a highly competitive market with much bigger and better funded competitors. The company also has significant debt, with interest payments this year of 306mlnR [$5mln]. Total ‘real’ assets (ignoring goodwill and intangibles) are worth about US$200 mln, so again, Omantel seems to be paying 50% more than effective book value, for a company that of late has demonstrated no growth in revenue and actually lost money in 2005. For all the details, see

Its hard to reconcile these numbers with the statement from Omantel quoted in that bastion of high quality investigative reporting the Oman Daily Observer - “Unlike other regional firms, we are very conservative and prudent in investing our funds,” said a senior official of the company.

The not-so secret majority Omani shareholder in the Pakistani WorldCall company that Omantel decided to buy so expensively is Sheikh Sulieman Ahmad Said Al-Hoqani. Sheikh Hoqani is also Chairman of the publicly traded Oman Hotels and Tourism Company, who run the Al Falaj Hotel, Ruwi Hotel, Al Wadi Hotel and Sur Plaza Hotel, essentially a set of second tier hotels.

Even more interestingly, a Mr. Salmaan Taseer serves as Chief Executive Officer and Director of Worldcall Telecom Ltd and the company reports that his total Annual Compensation is $1.6M. Hmmm. Nice work if you can get it. That’s about 25% of the company’s real profits this year. Maybe Omantel will be looking into the compensation packages…

WorldCall is strongly linked to First Capital Securities Corp. Ltd. (1CSC:Karachi Stock Exchange), currently trading at around 90Rupee up from a yearly low of just 22Rupee. Sheikh Hoqani is on the board of directors of 1CSC, and its board shares most of the board with World Call. Mr. Taseer also serves as Chairman of the Board of Directors and Chief Executive Officer of First Capital Securities Corp. Ltd. His compensation package from 1CSC is not stated.

Sheikh Hoqani is listed as a major shareholder in Khadim Ali Shah Bukhari & Co. Ltd.[KASB] a Pakistani Financial Services Company, Brokerage, Bank and IT conglomerate. Interestingly, KASB also owns World Tel Oasis, an IT company also specialising in Internet provision in Central Asia in partnership with World Tel Canada. It also is in the internet supply business in Pakistan, and would seem to be a competitor to WorldCall.

It might be very interesting to know the details of any financial commitments WorldCall has made to 1CSC. It seems strange that 1CSC’s share price has shyrocketed at the same time as the Omantel deal with WorldCall was made clear.


  1. Niiiice. WHere did you find the numbers?

    Maybe time for another EGM? One Where the shareholders get invited. And then they get to ask a few pointed questions regarding what, exactly the benefit is in paying that much over the liquidation value of some apparently useless pakastani tel-com.

  2. Suburban - WorldCall is a publicly listed company. The annual reports are available right there on their website. I glanced through the figures and wrote very briefly on OCB that the company's sales are flat and profit is declining.

    Undercover Dragon - thanks for running the numbers. Although I am a finance major, lately I found myself staying away from analyzing annual reports on my own unless i have to.

    This is the kind of work that should be taken up by financial analysts in Oman and published by newspapers. Omantel is being taken for a ride. I can't believe they refused to take the license for the third GSM network in Yemen and now they are buying this sick company in Pakistan instead.

  3. In October 2005, Omantel bid $101.5 million for Yemen's third mobile network. They were outbid by China Mobile's UNITEL consortium which had bid $150 million.

    In March 2006, Omantel disclosed that they had been contacted by Yemen's Ministry of Communication to start negotiations over the same license after the Yemeni government voided the Chinese consortium's bid when they didn't pay the license amount by the due date. In effect, the Yemeni government asked Omantel to buy UNITEL's license.

    Omantel later quietly announced they decided not to take the third license. The reason, off the record, was that Omantel was not satisfied with the way UNITEL got the license in the first place. They hadn't placed a bid bond to back their bid, they didn't have the necessary experience to qualify, and they took 5 months to pay the license whereas the rules said they winning bidder has to make payment within 30 days.

    Regardless whether the Yemenis were playing dirty or not, Omantel could have had the third mobile license in Yemen for much less than what they are paying now for 65% of a troubled Pakistani telecom company that has no mobile license at all.

  4. Suburban,
    As Muscati says, as a listed company they have to file annual reports, even in Pakistan!

    Thanks. And it wasn't exactly hard to get the numbers either. But as this calculation is very, very easy, I have to admit I suspect that the decision makers in OmanTel know exactly what they are buying.

    Therefore it is only natural to wonder if there is some other possible explanation for why the purchase would be made?

    Could it be possible that some of that $200mln purchase price [paid for by the Government and the ordinary shareholders of OmanTel] is finding its way back through the back door... Surely not.


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