Zain Saudi CEO reveals plans to pursue towers sale

Mobile Telecommunication Company Saudi Arabia (Zain Saudi) is pursuing its towers sales plan, chief executive officer, Sultan AlDeghaither, told Argaam in an exclusive interview.

"We will sell and re-lease the towers; we are currently in the process of receiving and studying the purchase bids," said AlDeghaither.

Last year, Zain injected SAR 1.9 billion worth of capital investments for the 5G network rollout. The 5G network will help boost the company's potential growth, AlDeghaither added.

Below is the complete interview:

Q: Zain reported a 46% profit increase to SAR 485 million by 2019-end, what are the main reasons for this profit hike?

A: We posted net earnings of SAR 12 million and SAR 332 million in 2017 and 2018, respectively. In 2019, we made SAR 485 million in net profit, extending a three-year earnings streak. This was mainly driven by an 11% rise in revenue in 2019, boosted by higher demand for the company's products and solutions provided to both retail and corporate sectors, as well as the introduction of high-quality services.

The telecommunication segment witnesses fierce competition in the Kingdom. However, we have a well-established position due to providing clients with an outstanding experience and high-quality services.

Also, Zain injected SAR 1.9 billion worth of capital investments in 2019 for the 5G network rollout, which will likely boost our growth potential.

Further, all business sectors in Saudi Arabia, seeking to fulfill the objectives of Saudi Vision 2030, depend directly, or indirectly on the telecommunications sector. Our top challenging investment in 2020 is the 5G network rollout.

Q: Despite the earnings growth on an annual basis, Q4 2019 net profit dropped 13% quarter-on-quarter (QoQ) to SAR 105 million. How do you see this decline?

A: Q4 2019 earnings decline was attributed to higher costs related to the 5G network rollout. We will likely report higher growth rates as of Q1 2020.

Q: Zain wrote back some provisions in 2019. Would you explain why were these provisions allocated?

A: In late 2018, Zain signed an agreement with the Ministry of Finance, the Ministry of Communications and Information Technology, and the Communications and Information Technology Commission (CITC) to settle the outstanding dispute related to royalties fees. Accordingly, Zain can reverse provisions of SAR 1.7 billion over 3 years. In addition, by implementing the terms and conditions of the settlement agreement, Zain can write back its provisions set aside during 2008-2018. However, these terms cannot be currently disclosed.

Provisions for the last 2 years were reversed, and the provisions for 2019 will be written back in case of fulfilling the agreement terms.

Q: What are the updates on the debt talks with the Ministry of Finance?

A: In August 2019, Zain Saudi started discussions with the Ministry of Finance to convert whole or part of the outstanding debts due to the ministry (around SAR 3.3 billion). The conversion of debt into shares will take place through partially underwriting of the proposed rights issues or any other means. Talks are still going and updates will be revealed in due course.

Q: Zain inked towers sale and re-lease agreement with IHS Holding. However, the deal was soon terminated after the CITC announced its rejection. Would you tell us more about Zain plans as regards the towers?

A: Zain inked the above-mentioned deal in March 2019, which included sale of approximately 8,100 passive tower infrastructure and building of an additional 1,500 (over the next 6 years) together with the lease back of such towers, for 15 years with the option to extend. The transaction value was raised from SAR 2.43 billion to SAR 2.52 billion. However, in June, Zain received a letter from CITC indicating that IHS Holding did not fulfill the regulatory requirements pertaining to the sale and lease back of the passive towers infrastructure.

Zain's accumulated losses dropped from SAR 2.3 billion to SAR 1.6 billion. We are still planning to sell the towers, and we are studying the purchase offers.

Q: There are talks about a new firm, established by the CITC, to operate all the telecommunication towers. What do you think of these plans?

A: As far as I know, the CITC doesn't have any plans in this regard.

Q: Does Zain intend to increase capital in 2020?

A: The capital increase plans were revealed in 2017, and we are still awaiting the regulatory approvals. Updates will be duly unveiled.

Q: What are the company's plans in 2020?

A: We will proceed with the 5G investments, expand its coverage in new cities, launch 5G apps for retail and corporate segments and offer the cloud computing services by end of Q1 2020. We will also file for the operation license for Tamam, the FinTech and micro-lending platform.