Inflection point

At the end of April pan-regional MVNO Friendi Group announced it secured an additional US$25 million of new funding from existing and new shareholders. The investment is aimed at further accelerating expansion plans across the Middle East, Africa and Asia region, setting the company on course for an initial public offering in another 2-3 years time

Vinter said he was very satisfied with the different sources of the latest round of funding

Prior to this latest round of funding, the last cash injection Friendi Group received was back in September 2009 when it announced an equity investment by Oman based Dolphin International LLC and global top-10 venture capital firm ePlanet Ventures (now called ePlanet Capital).

Dolphin International LLC is a privately owned Omani company established in 1985 that holds a diverse portfolio of investments in banking, infrastructure, education, healthcare, bio-technology, advertising, real estate, construction, surgical products and energy.

ePlanet Capital is a venture capital company with offices across Asia, North America and Europe. It has funded high-growth companies worldwide, including landmark investments such as Baidu, Skype and Focus Media. ePlanet had already participated in an earlier round of funding in Friendi Group, and the latest round announced in April 2011 includes existing investors as well as new funding sources.

“I am very satisfied with the different sources of the latest round of funding,” Mikkel Vinter, Friendi Group founder and CEO told Comm. “Dolphin International participated in the first line of funding which was local. Then again in the regional round, and now in this round. It is a clear validation of the business we have built and the direction in which we are headed,” he added.

Having been established in 2006, Friendi Group has gone on to launch mobile resellers or b-brand operations in Oman, Jordan and Saudi Arabia. The company has also entered strategic alliances with providers in India and Asia, establishing itself as the pre-eminent MVNO player from out of the Middle East.

At US$25 million, the latest tranche of financing is enough to fuel Friendi Group’s entry into a further 3-4 markets, which is something Vinter is keen to see happen before considering a move to IPO in the 2012/2013 timeframe.

“We are in discussions in more than 10 markets currently,” Vinter said. “In a handful we are at a very advanced stage of negotiations and I am confident that by year-end we would have launched an additional operation, with the pipeline building in Q1 2012,” he added.

The latest funding for Friendi consists of US$10 million equity from new and existing shareholders, plus a US$15 million structured debt facility from Standard Bank.

The US$10 million equity element of this funding is provided partly by existing Friendi Group shareholders, led by Dolphin International, and partly by a new shareholder, National Technology Enterprises Company (NTEC) of Kuwait. NTEC is mandated by the Kuwait Council of Ministers and was created to play a role in servicing major stakeholders in Kuwait with their technology needs. NTEC’s business model is that of a technology projects development company utilising investment tools such as private equity, venture capital and direct investments to initiate and stimulate technology projects in Kuwait and the local region.

The US$15 million structured debt facility has been provided by Standard Bank, a global bank with emerging market focus headquartered in South Africa. Standard Bank has operations in 32 countries across Africa, Europe and the Americas.

“The people at Standard Bank were very thorough in reviewing our business, and for us to come through that diligence process with their backing does give us a real sense of achievement that major institutions have a better understanding of the potential that exists in the market, and our way of approaching the opportunity,” Vinter said.

At the time that Friendi Mobile, as it was then, launched in 2006, a number of competitors were also eyeing the nascent MVNO opportunity in the wider Middle East region. A couple of the interested parties such as mobile distributors and resellers Axiom Telecom and i2 were arguably better placed to develop the market given their already established distribution channels.

However, the period of time between then and now has not been positive to the two resellers. In the middle of last year it was announced that UAE retailers CompuMe and i2 Mobile were being acquired in a management buyout led by chief executive Dikran Tchablakian.

Tchablakian had owned 40 per cent of digital and IT products and services provider CompuMe, with the rest of the company owned by Saudi-based mobile retailer i2.

Tchablakian acquired the other 60 per cent of CompuMe, as well as 100 per cent of i2’s operation in the UAE, making an undisclosed investment in the venture.

As for Axiom Telecom, late last year the company was forced to pull out of seeking an IPO on Nasdaq Dubai, stating it had to reconsider its options.

Axiom was set to offer institutional investors about US$100 million in shares, although the size of the issue had steadily fallen from more optimistic plans announced earlier in 2010. The company had originally looked to IPO up to 35 per cent of the stock.

Axiom was set to list its shares on the Nasdaq Dubai before the end of 2010 with an offering that was expected to give it a market valuation of US$1 billion.

“While there were sufficient orders to fully cover the IPO book at the price range, primarily due to demand from high quality international investors in Europe and the US, there were widespread concerns about market conditions and liquidity,” the company said in a statement. “The board has therefore decided to withdraw the offer at this juncture to protect current and future shareholders of Axiom.”

Thus Friendi Group has established a leadership position in the market, which it is intent on maintaining and growing. In Oman, the first market it launched commercial service, in partnership with incumbent telco Omantel, the company has enjoyed a strong following despite there being five mobile reseller licences in the market, with the potential of a further two entering the space.

The latest publicly available information on Oman’s telecom sector shows that the country’s resellers combined command approximately 10 per cent of the entire mobile market, with Friendi Mobile enjoying a 60 per cent share of the mobile reseller market.

“At the start we had a vision of becoming the leading pan-regional MVNO, and that is starting to come through, which is satisfying” Vinter said.