Iraq telecoms IPO: turning point?

Iraqi telecoms firm Asiacell’s $1.3bn initial public offering is the Middle  East’s largest in four years.

There are also hopes the issue will mark a turning point in the history of  post-Saddam Iraq, with the authorities seeking to broaden public share ownership  throughout the country. But the buzz around the landmark event has not travelled  far.

The sole book-runner, Rabee Securities, says the shares on offer have already  been placed, mainly to Iraqi and Gulf investors. Strong support from “friends  and family” of Asiacell’s founders in the Kurdish city of Suleymaniya in  Northern Iraq is helping propel demand.

Qtel, which owns a 54 per cent stake in the second largest telecoms firm in  Iraq, wants to increase its stake to around 60 per cent, which has spurred  related demand in Doha as Qatari investors come in on Qtel’s coat-tails.

Other Gulf entities, such as investment houses linked to the state, are  expressing strong demand in the firm, which has 43 per cent market share with  around 10m subscribers, says Shwan Taha of Rabee.

But the deal feels like a regional affair. When this became clear, original  joint book-runners Morgan Stanley and then HSBC pulled out.

One regional banker also says the logistical difficulties of signing up for  the issue – wiring money into Iraq and setting up local accounts – has put many  investors off.

The political backdrop is also worrying for risk averse investors. Sectarian  and nationalist tensions are increasing within the country amid rising  complaints about a new authoritarianism in Baghdad.

One fault line deepening recently has pitted the central government and the  Kurdish regional government over the latter’s pursuit of an independent energy  policy. In terms of pricing, the market is divided. One banker says the deal – at six times Ebitda – is overly expensive. But others are filling their  boots.

Sebastien Henin of The National Investor in Abu Dhabi says the issue is  sparking demand among his peers, who like Asiacell’s strong growth story. “There  just aren’t enough opportunities now, and there is strong demand for emerging  markets exposure like this,” he said.

Domestically, too, Taha hopes that the issue will mark Iraq’s BG moment,  harking back to Margaret Thatcher’s privatisation of British Gas. That landmark  deal in the roaring ‘80s was boosted by the famous “Tell Sid” advertising  campaign.

The stock exchange and Asiacell have also been promoting the share sale via  public information-style ads, describing in layman terms how to subscribe before  the February 2 close.

Rabee has partnered with a bank to sell shares across the country, and Taha  describes his Suleymaniya branch as “a zoo,” so relentless has been the demand  to purchase shares.

But other Iraqis are more lukewarm. Alaa Tayeh, a businessman from the  southern city of Basra, is a typical member of the entrepreneurial middle class,  importing cars and generators, as well as owning a hotel. He is not interested  in reinvesting his profits into the stock market. “I don’t believe in it,” he  says. “I want something in my hand, a car or gold.”

An Iraqi entrepreneur based in Dubai, despite his avowed determination to  invest in his home country, says he feels unsure about growing political risk. “It’s just too unstable now,” he says. “The government looks precarious and I  just don’t feel patriotic about this, even though it is a brilliant  business.”