Arab Advisors Group
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Arab Advisors Group's analysis of Saudi Telecom's upcoming IPO: An ambitious valuation target that could still be successful!
Monday, September 23, 2002

A newly released report from the Arab Advisors Group overviews and analyzes the plans for Saudi Telecom 's IPO and the Saudi market liberalization.

September 23, 2002 -

The Saudi Government has announced its plan to increase Saudi Telecom Company (STC) paid capital by 25% and to offer 30% of the monopoly operator for public subscription before the end of this year. Only Saudi nationals and organizations will be eligible for buying Saudi Telecom's shares. The government has also announced that the GSM market will be open for competition in the last quarter of 2004, while competition in the PSTN market is set for 2008.

A new research entitled "Saudi Arabia sets its privatization and liberalization blueprints" was released to Arab Advisors Group's (www.arabadvisors.com) Strategic Research Service subscribers on September 22, 2002. The report notes that the public offering will be preceded by an increase in STC's paid capital from SAR 12 billion (US$ 3.19 billion) to SAR 15 billion (US$ 3.99 billion), a 25% increase, by reallocating part of the retained earnings to the paid capital.

The new capital will be divided into 300 million shares each with a nominal value of SAR 50 (US$ 13.5). The government hopes to sell the shares at US$ 54.2 and hopes to cash in as much as US$ 4.06 billion) from the 30% stake sold. This translates into a Saudi Telecom Company market capitalization of US$ 13.655 billion: A PE Ratio of 14.4, which is a higher ratio when compared with those of other telecom operators in the Gulf region.

"Despite the higher than average valuation, STC still holds great potential, especially that both PSTN and GSM markets in the Kingdom have not yet reached their envisaged potential and the company has ample time to satisfy the pent-up demand in these segments. By end of 2001, the number of mainlines stood at 3.2 million and the number of cellular subscribers at 2.5 million, (a penetration rate of 15% and 12% respectively)." Arab Advisors Group's analyst Shahin Shahin noted.

"The introduction of prepaid service in the GSM market in April of this year has already resulted in a boom in GSM market growth and will enhance STC's revenues from the rapidly growing GSM service." Mr. Shahin added. "Add to this the plans to reduce the governments' revenue sharing agreement with STC, and the more than 6 years of monopoly time left, and STC has a lot of time to put its house in place and justify its high valuation".

The Arab Advisors Group's team of analysts in the region has already produced more than 114 reports on the Arab World's communications markets. The reports can be purchased individually or received through an annual subscription to Arab Advisors Group's Strategic Research Service. To date, Arab Advisors Group has served more than 60 global and regional companies by providing reliable research analysis and forecasts of Arab communications markets to these clients.

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