Qatar Telecom (Qtel) has emerged as a possible buyer for Zain Saudi Arabia –a deal which could open the door for rival Gulf operator Etisalat to buy a significant share in Kuwaiti-based Zain Group. Etisalat confirmed last week it is bidding KWD1.7 a share for a 46 percent stake in Zain, which values the holding at just under US$12 billion. However, in a research note, Bahrain-based Sico Bank noted that the deal would create problems in Saudi Arabia where both Zain and Etisalat have existing operations. A merger of Etisalat’s Saudi mobile arm, Mobily, and Zain “seems unlikely” since it would violate merger guidelines in Saudi Arabia’s Telecom act, Sico said. “The merged (Mobily-Zain Saudi) entity will have close to 55 percent mobile market share in this case and will definitely lessen competition in the kingdom,” it noted.

The bank highlighted a move by Qtel to buy-out Zain in Saudi Arabia as a likely solution to the problem.  “Qatar Telecom could be a possible contender for taking over Zain’s Saudi operation considering its strategic ambitions to expand its operations in the region,” Sico said. The bank values Zain’s stake in Zain Saudi Arabia (25 percent) at around US$925 million assuming a 25 percent premium for a controlling stake. Zain Saudi Arabia paid US$6 billion for a licence to operate in the largest Arab economy in 2007 and has built a customer base of 7 million in just two years. However, the business faces competition from two much larger rivals (Mobily and Saudi Telecom’s STC). The network recently announced plans to raise US$1.2 billion through a rights issue to fund its network expansion.