MTN May Buy ZTE’s 51% Stake In Congo Firm

31st March 2009

MTN Group Limited may buy ZTE Corp.’s 51 per cent stake in a mobile-phone company in the Democratic Republic of Congo to widen its lead as the biggest wireless operator in Africa.

MTN’s the front-runner among several suitors in talks to acquire control of Congo-Chine Telecom SARL, Kang Linghua, a spokesman at the venture, said in an interview in Kinshasa yesterday.

Negotiations to sell the country’s third-largest wireless operator, valued at about $400 million, may stretch beyond this year because of the financial crisis, he said. MTN declined to confirm or deny the discussions.

A purchase would allow Johannesburg-based MTN to expand into a market that’s forecast to add 25 million subscribers over five years as 85 per cent of people there still have no mobile phones. For ZTE, exiting the venture would help the Chinese company focus on its main business of selling equipment and handsets in a region where sales surged 70 percent last year.

"The DRC has huge potential for growth in mobile phones," said Michele Scanlon, principal consultant at Green Giraffe, a Cape Town-based telecommunications research company.

"MTN would be able to bring their marketing and commercial skills into the market and a significant investment budget. For ZTE, it had been an incubation project."

MTN cannot comment on any specific deal and the company continues to pursue "value-enhancing" opportunities, it said in an e-mail. Margrete Ma, a Shenzhen-based spokeswoman at ZTE, China’s second-largest maker of phone-network equipment, declined to comment.

ZTE rose 0.5 per cent to close at HK$29.20 in Hong Kong trading, extending the stock’s gain this year to 44 percent. MTN was unchanged at 110.50 rand in Johannesburg trading as of 10:34 a.m. local time after earlier rising as much as 1.9.

Morocco’s Maroc Telecom has also held talks about a possible purchase, Kang said. Maroc spokesman Ali Jouahri declined to comment.

Congo-Chine, established in 2000 between ZTE and the Congo government and launched in 2002, has 13 percent of the nation’s mobile-phone market after South Africa’s Vodacom Group Ltd. and Kuwait-based Zain, Kang said.

The Democratic Republic of Congo will be among the fastest- growing markets in the region in the next five years, Goldman Sachs Group Inc. said in a March 20 report. The country’s percentage of people owning mobile phones may rise to 47 per cent in 2013 from 15 per cent last year, while the region’s wireless penetration will increase to 88 per cent from 48 per cent, according to the report.

ZTE, based in Shenzhen, south China, last week reported profit rose 39 percent to 1.66 billion yuan ($243 million) last year, helped by a 34 per cent increase in overseas sales. The company, which supplies network equipment to customers including Ethiopian Telecommunications Corp., said revenue from Africa jumped 70 per cent to 9.3 billion yuan in 2008. ZTE doesn’t specify contributions from Congo-Chine.

MTN’s profit last year climbed 44 per cent to 15.3 billion rand ($1.6 billion) after its operations in Iran and Nigeria helped the company’s number of subscribers increase 48 per cent to 90.7 million. Earnings before interest, taxes, depreciation and amortization — a measure of a company’s inflow of cash — will jump to $7.67 billion by 2013 from $5.22 billion last year, according to Goldman estimates.

MTN Chief Executive Officer Phuthuma Nhleko said in an interview this month that the company is seeking "a meaningful" acquisition this year to add to its operations in 21 markets. The South African carrier wants to start operations in Angola and Ethiopia, he said.

ZTE’s stake in Congo-Chine may prevent the Chinese parent from winning equipment orders from other local phone operators, "which is bad for business," Kang said.

Last year, MTN failed to close two deals with Indian companies. Talks with Reliance Communications Ltd., India’s second-largest mobile-phone operator, ended without an agreement because of "legal and regulatory issues," and talks with Bharti Airtel Ltd. ended because agreement on management and ownership structures couldn’t be reached.

Source: The Nation

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