CAIRO: Hutchison Telecommunications International will seek the Israeli government s consent for Orascom Telecom to increase its stake in Partner Communications above 10 percent, according to Israeli business daily Globes.
Through its acquisition of 19.3 percent of Hutchison last December, Orascom became the ultimate owner of 9.99 percent of Partner, an Israeli mobile operator with 2.5 million subscribers that is majority-owned by Hutchison. Orascom s stake in Partner is just short of the 10 percent that would require government approval, prompting the Israeli press to speculate earlier that the Hutchison deal was specifically designed to avoid such scrutiny.
The request for a larger share of Partner may be a precursor to an additional purchase of Hutchison by Orascom. Naguib Sawiris, chairman and chief executive officer of Orascom, has been vocal about his interest in a controlling stake of Hutchison and his company has an option to purchase a further 3.7 percent of Hutchison from its parent company, Hutchison Whampoa, by the end of the year.
Globes reports that while approval will be sought from the Israeli Ministry of Communications, any further purchase will also be subject to a security evaluation by Shin Bet, Israel s domestic security agency.
The Israeli government is generally sensitive to any foreign ownership of its telecommunications infrastructure, and an acquisition by an Arab company is unlikely to be an exception.
The Shin Bet security service was tightly involved in the [telecommunications] privatization process, Israeli newspaper Haaretz reported last December, trying to ensure that foreign owners wouldn t cause any seepage of Israeli secrets or compromise state security. It therefore banned any of the major communications giants of the world from taking control of it.
As Orascom expands its geographic reach, resistance to its acquisitions is not restricted to Israel. Orascom and Hutchison together have control over the GSM market in a large portion of Asia. In the Indian subcontinent, Orascom has operations in Pakistan and Bangladesh, while Hutchison owns 53.1 percent of Hutch Essar, India s third-largest mobile operator.
A controversy has been brewing in India for several weeks over the perceived security risk from Orascom as a dominant player in the telecommunications market of India s traditional foe Pakistan. This was sparked by a letter from M.K. Narayanan, national security advisor to Indian Prime Minister Manmohan Singh, to India s Department of Telecommunication stating that Orascom was a national security threat due to its position in Pakistan and Bangladesh; this is also exacerbated by Hutchison s own operations in China, which has border disputes with India and enjoys warm relations with Pakistan.
Orascom s geographic breadth is therefore a mixed blessing. There are two sides to this, explains Walaa Hazem, senior analyst at HC Brokerage. There may be a risk to expansion, but at the same time it reduces risk because of diversification. Orascom is also expanding to growing markets through its acquisition of Hutchison and can benefit from synergies.
Orascom expects to save $300 million to $500 million on procurement as a result of its acquisition of Hutchison. Such synergies have not yet been demonstrated, however, since the company only released its 2005 earnings yesterday. It is too early to see the financial synergies of the acquisition, says Hazem. They will be demonstrated in the 2006 figures.
While HC Brokerage is in the process of updating their valuation of Orascom based on the latest financial results, Hazem explains that the challenges to a larger share in Hutchison will not influence his firm s valuation of Orascom. Our valuation is based on [the] current situation and not on an assumption of an increased stake in Hutchison, says Hazem.