Seeking restructuring, Wateen sponsor offers shareholders a buyback

Minority investors offered premium as Abu Dhabi Group goes into recovery mode.

KARACHI:

In a stunningly candid letter to investors, Wateen Telecom’s majority shareholder Warid Telecom International (WTI) admitted that the company does not offer value to its minority shareholders, does not have the capacity to repay its debts, and is thus offering to buy out the rest of the company for Rs4.50 per share.

“Based on WTI’s long-term projections, we believe that even on the most optimistic basis, cash realised [from Wateen’s operations] would not cover the existing levels of debt plus accrued interest,” wrote David Burlison, a representative of WTI, in a communiqué originally written to the board of directors of Wateen.

The letter from WTI (not to be confused with Warid Telecom Pakistan) – sent by Wateen to the Karachi Stock Exchange on Friday morning – is tantamount to admitting that Wateen is bankrupt. In this case, however, the sponsor seems to be going out of its way to ensure that despite its severe financial difficulties, Wateen continues to function and even the common shareholders – who typically see the value of their investment completely wiped out – at least get some payout.



WTI’s offer to take Wateen private appears to be a highly generous one. The sponsor appears to be admitting that the book value of Wateen has been wiped out, and yet is still paying minority shareholders a 17.8% premium over Thursday’s closing price of Rs3.84 per share. Small wonder that investors reacted positively, with Wateen’s stock trading a record 28.3 million shares to close up 9.4% at Rs4.20 per share in Friday’s trading on the Karachi Stock Exchange.

Despite being a listed company, the true state of Wateen’s finances is unknown, since it has not published financial statements that cover any period beyond September 30, 2011. Even those last financial statements, however, showed that the company was in serious trouble. The company then owed Rs12.4 billion in debt repayments that year and had earned an operating loss of Rs2.5 billion in the preceding year ending June 30, 2011.

Wateen’s current debt payments exceed even its total revenue, which was Rs6.8 billion during fiscal 2011, a 15% decline over the previous year. While the company has yet to put out any financial statements for 2012, sources familiar with Wateen’s records say that the company’s revenues for that year have almost halved to Rs3.5 billion.

WTI is an Abu Dhabi Group company and owns a majority stake in Wateen as well as a significant share of Warid Telecom Pakistan. The Abu Dhabi Group has several other holdings in Pakistan, most notably Bank Alfalah, and a sizeable minority holding in United Bank. In contrast to the struggles of its telecom subsidiaries, the financial services portion of the Abu Dhabi Group’s Pakistan portfolio has been doing well.

It is perhaps this commitment to remain a credible investor in Pakistan that has resulted in the Abu Dhabi Group making such a generous offer, one that its representatives pointed out in a statement released to the press. “WTI believes that the de-listing provides the shareholders with an exit from the business at a return of value which is in excess of that which they would receive on an orderly disposal of the business,” said Burlison.

In short, WTI wants to buy out the minority investors before injecting more capital into Wateen in a bid to keep the struggling company afloat. Many investors agree that Wateen is still a good long-term bet on an increasing use of high-end telecommunication services in Pakistan: it is just ahead of its time.

“It make sense for them [WTI] to take it private away from public scrutiny and then pump in more cash while they try to revive its revenues,” said one portfolio manager at a large asset management company.

Published in The Express Tribune, March 30^th, 2013.

Like Business on Facebook to stay informed and join in the conversation.