According to a recent report by Moody’s, telecom operators in Gulf Cooperation Council (GCC) countries are eyeing expansion opportunities in Europe and, potentially, Asia and Africa. This strategic move is driven by several factors, including the relatively lower valuations of international telecom companies, making it an opportune time to invest in overseas markets.
These “investments could be credit-supportive in the long term,” stated Moody’s in the report. However, “the benefits will depend on the balance between the maturity and growth potential of new geographies,” it added.
Stake acquisitions
One of the most notable developments, Emirates Telecommunications Group Co PJSC (e&), acquired a 14.6 percent stake in Vodafone Group PLC. Vodafone is a leading industry player in Europe and Africa. Additionally, e& has agreed to purchase international assets from PPF Telecom Group B.V.
According to Moody’s, e& is poised to spearhead revenue growth in the GCC telecom sector next year. The report noted that telecom companies in the region could hit an average annual revenue increase of 3 percent. For e&, the forecast is substantially higher: approximately 20 percent. This growth is primarily due to the consolidation of PPF Telecom assets.
In the third quarter (Q3) of this year, e& posted a net profit worth $3.6 billion. This reflects a 20 percent year-on-year (YoY) surge. Meanwhile, its subscriber base hit a record high after reaching 14 million by the end of Q3.
In Saudi, the Saudi Telecom Company (stc) has also made a remarkable move. It secured a 9.9 percent stake in Telefónica S.A. while its subsidiary, TAWAL, has acquired tower assets in Eastern Europe.
The country’s largest mobile operator reported a 38 percent jump in its Q3 profit, reaching $1.31 billion.
Read: stc Group acquires a 9.9% interest in Telefónica
Opportunities in Europe
The new Moody’s report highlighted that Europe will likely serve as the primary region for expansion among GCC telecom players. A major factor is that the continent aligns well with the existing footprint in the GCC. Moreover, it offers diversification opportunities, allowing regional players to tap into more developed jurisdictions.
Nevertheless, the report noted that European governments may be cautious when approving acquisitions of strategic telecom assets by foreign investors.
“This makes the acquisition of sizeable minority shareholdings a potentially attractive option,” elaborated Moody’s.
As part of their diversification efforts, GCC operators are also actively investing in digital consumer services and tech enterprise solutions. In parallel to this, they are also divesting their tower infrastructure, a move expected to unlock financial resources and enhance operational efficiency.
However, the report cautioned that high-interest rates, inflationary pressures, and increased complexity could negatively impact the potential benefits of such divestments.
Despite these challenges, regional operators are well-positioned for heightened investment and merger and acquisition activities. This is thanks to their strong credit quality, sound credit metrics, robust balance sheets, and substantial cash reserves.
For more telecom news, click here.
