Telecom Egypt may sell Vodafone stake to STC: sources

Telecom Egypt may sell its 45 percent stake in Vodafone Egypt to Saudi Telecom Co. (STC), telecommunications sector sources told Amwal Al Ghad on Monday.

The state-owned company seeks to retain a minority stake in Vodafone Egypt, the sources added.

“Telecom Egypt will announce the investment bank to assess the sale plan within two weeks maximum,” the sources said.

Earlier this month, Telecom Egypt reportedly asked four investment banks; EFG-Hermes, CI Capital, HSBC, and Citi to submit preliminary offers to advise on STC’s acquisition of Vodafone Egypt.

On Jan 29, STC, the kingdom’s biggest telecom operator, struck a preliminary deal to buy Vodafone Group’s 55 percent stake in Vodafone Egypt for $2.4 billion.

The deal, which could be STC’s biggest in over a decade, values Vodafone Egypt at $4.4 billion and the two companies have agreed an arrangement over the long-term use of the Vodafone brand and other services in Egypt.

Vodafone said the transaction was expected to close by June. STC said the non-binding agreement was valid for 75 days from January 29 and could be extended by mutual consent.

With 44 million subscribers and a 40 percent market share, Vodafone Egypt is the biggest mobile operator in the country.

On February 5, Moody’s said in a report that STC’s acquisition of Vodafone Egypt would be credit negative if the transaction is fully debt-funded,

The transaction, if fully debt-funded, would increase STC’s leverage (debt/EBITDA) to around 1.0x from 0.7x as of year-end 2019, a credit negative because leverage would be high for STC’s A1 rating, the ratings agency added.

“The transaction will likely negatively pressure margins that are already pressured because of high costs related to the 5G roll-out in Saudi Arabia (A1 stable),” Moody’s said in a note.

However, the rating agency said the transaction would increase the company’s diversification, with pro forma revenue from international operations contributing around 17 percent to total revenue, from 9 percent in 2019.

“The decrease in margins could be partially offset by synergies the company can extract from the transaction, given the proximity of the two countries and the lower labor cost in Egypt compared to Saudi Arabia,” it said.