Middle East Companies Target India

Emirates Telecom and renewable energy outfit Masdar have bought stakes in Indian companies in their respective industries

In a move that shows the continued appetite of Middle Eastern firms to expand outside their immediate region, Emirates Telecommunications (Etisalat) and renewable energy company Masdar yesterday announced cross-border acquisitions in their respective industries. Both deals were struck with Indian business groups, adding to the growing business relations between the Middle East and India and illustrating the increasing flow of money moving between these two regions.

Etisalat, the largest telecom operator in the United Arab Emirates, led the way by signing a definitive agreement to take an approximate 45% stake in Swan Telecom by subscribing to newly issued shares at a cost of up to $900 million. The price implies a post-money equity value of up to $2 billion, it said in a brief announcement to the Abu Dhabi Securities Market.

Privately owned Swan Telecom holds mobile licenses for 13 areas in India and is in the process of acquiring two more, giving it access to a population of 900 million potential mobile phone users across India. The Universal Access Service Licenses allow it to provide a full spectrum of telecom services, including GSM services.

Separately, Masdar, which is also based in Abu Dhabi, has bought a significant equity stake in Finnish wind turbine manufacturer WinWind, for €120 million ($175 million). WinWind is headquartered in Helsinki, but majority owned by India's Sterling Infotech Group, which is involved in businesses across multiple sectors including communication, media, renewable energy, real estate and agriculture. The acquisition marks Masdar's first investment into wind and a diversification of its portfolio of renewable energy assets that so far also includes investments into solar power.

"Wind plays a crucial part within renewable energy as it is commercially competitive today. It is important for Masdar to be part of that growth," Masdar's CEO Sultan Al Jaber says in a release. "Winwind is at an interesting phase and is set to expand into a truly global wind company servicing several key markets like Scandinavia, USA, Europe, the Middle East and Asia."

Masdar, which on this acquisition was advised by Royal Bank of Scotland, is a multi-billion dollar initiative by the Abu Dhabi government to invest in the development and commercialisation of innovative technologies within renewable, alternative and sustainable energies as well as sustainable design. It is owned by the government through the Mubadala Development Company and run by a subsidiary called the Abu Dhabi Future Energy Company (ADFEC). In January this year, the government said it will invest $15 billion into Masdar.

WinWind makes one and three megawatt wind turbines based on low speed technology, which makes them suitable for low wind conditions while at the same time allowing for high energy yields, low maintenance and a longer life. Masdar's investment will enable the company to accelerate its expansion plans and enhance its position in new markets. According to the release, a large portion of the capital injection will go towards the expansion of its Indian operations. WinWind currently has assembly plants in Oulu in Finland and Chennai in India and once this deal has been completed, it also plans to expand elements of its operation to Abu Dhabi.

"This deal is a great opportunity for WinWind and its shareholders and it will propel the company into significantly larger markets. Masdar has made a strategic move by investing in a company that has grown steadily over the past few years," notes Vaidyanathan Srinivasan, group CEO of Sterling Infotech.

Neither announcements provided any details on the valuations of the two privately owned targets, but Middle Eastern companies are increasingly looking to India for expansion possibilities and are likely willing to pay a premium for the right business. This is particularly true within the telecom sector where the Middle Eastern operators are trying to offset increasing competition at home with the growth possibilities both in India and the rest of Asia. India has surpassed the US as the world's largest mobile phone market after China and, as of June this year, had 287 million mobile subscribers, but penetration is still low and the market is expected to continue to grow strongly.

According to media reports, Etisalat has also been in talks with other Indian mobile players about a potential investment, including Spice Communications and Videocon-backed Datacom Solutions. Other Middle Eastern operators such as Qatar Telecom, Bahrain Telecom and Kuwait's Zain Telecom are also said to be looking at Indian assets, in particular those players who have recently obtained new licenses. Aside from Swan Telecom, this group also includes Unitech, S-tel and Datacom.

Meanwhile, in June 2007 Saudi Telecom bought an effective 25% stake in Malaysia's leading telecom firm, Maxis Communications, which aside from Malaysia also gave it a foothold in India and Indonesia. And in July this year, Qatar Telecom bought 40.8% of Indonesia's Indosat.

The remaining 55% of Swan Telecom is held by several entities, including its promoter which is controlled by the Mumbai-based Dynamix Balwas Group. The latter is also active within the real estate and hospitality sectors. When it was awarded its licenses last year, Anil Ambani's Reliance Communications was said to own 9.9% of Swan.

Citi acted as the exclusive financial advisor to Etisalat in connection with this transaction, while Swan Telecom was advised by Deutsche Bank.