France Telecom Weighs Deal to Buy Congo China Telecom Stake

France Telecom SA CEO Stephane Richard
France Telecom SA chief executive officer Stephane Richard is re-orienting his countrys largest telecom company toward Africa and the Middle East as growth slows in European markets. Photographer: Denis Doyle/Bloomberg

France Telecom SA may make the Democratic Republic of Congo its next target for African expansion after entering exclusive talks with China’s ZTE Corp. to purchase a majority stake in Congo China Telecom, the country’s fourth-largest mobile operator.

France Telecom could later purchase the 49 percent of the operator held by the Congolese government as part of a a call for bids, in addition to ZTE’s 51 percent stake, said Beatrice Mandine, a France Telecom spokeswoman. The combined transactions could represent an investment of about 300 million euros ($425 million), according to a person familiar with the situation. An exact valuation is hard to determine because the government tender hasn’t been completed, the person said.

Chief Executive Officer Stephane Richard is reorienting France’s largest telecom company toward Africa and the Middle East as growth slows in European markets. Paris-based France Telecom agreed to pay $245 million for a 20 percent stake in Iraq’s Korek Telecom in March, and last year bought 40 percent of Morocco’s Meditel for 640 million euros.

Margrete Ma, a spokeswoman at ZTE in Shenzhen, said the company is aware of the report about France Telecom and Congo Telecom, and declined to comment further.

Forty Years of War

With 65 million inhabitants and a mobile penetration rate of just 17 percent, Congo is one of Africa’s largest -- and least developed -- countries. Paris-based France Telecom already operates in African states including Ivory Coast, Kenya, and Cameroon.

“Just by increasing the penetration rate, there’s a pretty big opportunity there,” said Nick Brown, an analyst at Espirito Santo Investment Bank in London. “It’s much more appealing than going into a more mature market.”

Still, Congo may present special challenges. The country, which has a land area just under one-fourth the size of the U.S., is still recovering from more than forty years of dictatorship and war. Last year the Congolese had a per-capita income of just $300, according to the Central Intelligence Agency’s World Factbook.

The Congolese government’s CCT stake is being considered for sale as part of a broader effort to divest some assets and transform more than a dozen state-owned enterprises into limited-liability companies. Besides telecommunications, the Central African country is also offering shares in some government cement projects, according to the Portfolio Ministry.

Middle East, Africa Sales

“The process is ongoing” to find a buyer for the CCT shares, and the government is aware that France Telecom’s talks with ZTE are “very advanced,” Faustin Mpako, the chief of staff at the ministry, said by phone from Kinshasa.

France Telecom’s emerging-market assets are taking on a larger share of revenue as economic growth in those countries outpaces that of Europe. Sales in the Middle East and Africa, excluding Egypt, climbed 5.8 percent in the first quarter. Revenue from France, which contributed to half of the group’s total, fell 2.6 percent to 5.6 billion euros.

The company last year set a target of doubling its overall emerging-market revenue by 2015, from about 3.3 billion euros in 2009.

France Telecom shares were down 0.2 percent to 13.75 euros as of 11:03 a.m. in Paris trading. They’ve fallen 12 percent this year, cutting the company’s market value to 36.4 billion euros.

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