S&P Global Ratings today said that Saudi sovereign wealth fund the Public Investment Fund’s (PIF) nonbinding offer to acquire 51 percent of Saudi Telecom Co.’s (stc) wholly owned towers subsidiary Tawal is another demonstration of stc’s strategy to monetize its assets.
Subject to regulatory approvals, the sale of the majority stake in Tawal and subsequent deconsolidation will likely have limited immediate effects on stc’s (A-/Positive/A-2) financial metrics and business operations, based on S&P’s preliminary estimates.
Tawal owns and operates more than 15,500 towers (4G and 5G) in Saudi Arabia and announced the acquisition of Pakistani tower company AWAL earlier this year. The subsidiary is valued at more than 21 billion riyals ($5.8 billion), implying proceeds from a 51 percent stake of about 11 billion riyals for stc. The PIF’s consolidation of towers infrastructure in Saudi Arabia should help, according to S&P, optimize the deployment of 5G investments, as the country fast-tracks its digital economy development under Vision 2030.
“We expect the deconsolidation to have a limited effect on stc’s consolidated financials, with Tawal treated under the equity method post transaction. We understand that Tawal generates the most revenue and profits from stc, which are eliminated on consolidation. At the same time, we realize that there is no financial debt and limited cash at Tawal. We expect a moderate but not meaningful reduction in consolidated capital expenditure (CAPEX) following the deconsolidation. This is because we estimate that 5G investments will normalize in the future, given those already undertaken (7,247 towers on Sept. 30, 2022) and stc’s focus will increasingly shift to investments in digital services,” added S&P.