TM International : Bids for third national mobile licence in Iran

December 1, 2008 at 1:46 am Leave a comment

• Forms consortium to bid for licence
TMI together with Fanavari Moudj Khavar (“Fanamoj”) and Sarmayegozarie Atiyeh Saba (“Atiyeh”) have entered into a consortium agreement to bid for the third public mobile network licence in Iran. Fanamoj is a high technology systems and solutions provider, while Atiyeh is an investment holding company. If successful, TMI together with its Iranian partners will become the third national mobile operators in Iran. TMI will hold 49% while its Iranian partners will hold a combined 51% in a new company set up to operate the third mobile licence if they secure the bid. The operating company would have to be created with a paid-up capital of at least 50% of the upfront licence fee estimated at €150m (RM684m). The licence is a national mobile licence for both 2G and 3G for a duration of 15 years. If TMI wins the bid, it will have an edge over its competitors
MCI and MTN IranCell, the only other two existing national mobile operators who do not have a 3G mobile licence.
• Gunning for a national presence
Winning the third national mobile licence is important to TMI despite TMI’s existing operations in Iran via its 49% stake in Mobile Telecommunications Company of Esfahan (MTCE). The licence held by MTCE only allows it to provide mobile services in the Esfahan province of Iran and limits MTCE’s total number of subscribers to 35,000. With such limitations, MTCE’s growth and earnings contribution is minimal.
• Mobile penetration rate in Iran still low
With a population of 73m in Iran and approximately only 56% mobile penetration as of Sept 2008, Iran is a relatively attractive market and offers good growth potential.
• Competition for the licence expected to be fierce
Competition is expected to be fierce as Reliance Communications, the second largest Indian mobile operator and Qatar Telecom are believed to be also bidding for the licence. Iran’s Press TV reported that the result of technical bids would be announced by Nov 30, and the winners of that round would have until Jan 11 to submit financial bids. Press TV also said that the licence winner would be the lowest bidder and would be announced on Jan 12.
• BUY call maintained, target price unchanged
We are maintaining our earnings estimates pending the results of the bids. While the move to expand into low penetration markets is positive, we are wary that TMI’s gearing levels have risen quite high with a
debt/equity ratio of 1.5x. Should TMI win this bid, it may have to gear up even higher to spend on licence fee (RM335m which is TMI’s portion) which may cause earnings to be hit in the near term due to higher
financing costs. Other risks factors include execution and country risks.

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