New man on board

Scott Gegenheimer was appointed CEO of Zain Group effective December 2, 2012, and immediately faced the challenge of re-establishing and re-communicating the Kuwait-headquartered company’s strategy given its relative inertia in the last two years

Gegenheimer was previously CEO of Wataniya Kuwait, from which he departed in June 2012

It was in March 2011 that Etisalat Group officially confirmed the end of its pursuit of a 46 per cent in Zain Group.

"Due to the results of due diligence done by Etisalat’s financial advisers and legal experts, the political turmoil in the region, the absence of a consensus between Zain’s shareholders, and the effect of the law binding offers that is due to be issued in Kuwait…Etisalat conditions that were announced on November 3 are no longer applicable," Etisalat said in a statement at the time.

Etisalat had launched its original offer for Zain, which was worth about US$11.7 billion, in September 2010, and then missed its first self-imposed January 15, 2011 due diligence deadline due to what it said at the time was a "lack of information." Its second due diligence deadline expired at the end of February 2011.

Since the withdrawal of Etisalat’s interest in Zain, the Kuwait-headquartered operator has found it challenging to re-establish a corporate identity of its own, with a vision of where it currently stands and where it intends to go. Zain Group has also been affected by a number of operational issues in a number of its key markets, including Saudi Arabia, Iraq, and Sudan, and could potentially face issues regarding the unit in Nigeria it sold on to Bharti Airtel.

The announcement of the intention to resign by former CEO Nabeel Bin Salamah came as Zain reported its Q3 results, stating that for the first nine months of 2012 it generated consolidated revenues of KD974.6 million (US$ 3.5 billion), down 1.4 per cent year-on-year.

Net income for the nine months to September 30, 2012 amounted to KD201.6 million, down 3.8 per cent on the same period in 2011. The company’s consolidated EBITDA came in at KD437.3 million, a drop of 1.6 per cent year-on-year, reflecting an EBITDA margin of 44.87 per cent, down from 45 per cent the previous year.

Subscriber numbers also shrunk over the period, totalling 41.282 million at the end of September 2012, down from 41.36 million.

The turnaround of the downward pressure currently being exerted on Zain’s key performance metrics will be an area Gegenheimer will have to dedicate significant resources towards early on. The company must look to ways to boost its revenue-generating capabilities while at the same time managing costs.

In Saudi Arabia, Zain continues to re-group after the challenging capital restructuring process that was undertaken towards the end of 2011 and saw the cellco undergo a reduction of its capital followed by a SAR6 billion (US$1.6 billion) rights issue.

The capital reduction resulted in the company’s paid-up capital being reduced from SAR14 billion to SAR 4.8 billion. The paid-up capital was then subsequently increased to SAR 10.801 billion by way of the rights issue.

The rights issue consisted of raising fresh equity and the capitalisation of subordinated shareholder loans to the company. The fresh equity was said to have been used to reduce bank debt, enhance the quality and performance of the existing network, as well as to expand the company’s 4G LTE network.

Despite these grand plans, Zain KSA has since been forced to delay the repayment of a US$2.6 billion loan on a number of occasions while it raises the funds for the repayment.

The company had already delayed repayment from July to the end of September 2012, but has now secured an agreement to delay repayment until the end of November.

In Iraq, the operation there lost its CEO Emad Makiya, who resigned in August, having served in the position since June 2010.

The operation has come under pressure from regulators for not having listed publicly in the required time as set out in the terms of its operating licence; and in July the cellco was slapped with a US$12,864 a day fine retro-active from September 2011, for failing to list, according to a report from Reuters.

Zain Sudan has also been exposed to the socio-economic and political challenges that have taken place in the region, as the country separated into two. The necessity to divide what used to be one network into two, covering Sudan and South Sudan, has been taxing, as has been the rapid decline of the Sudan pound against major global currencies.

A legacy issue also remains in Nigeria, where in October tenacious African telco Econet Wireless saw a court in the country dismiss an application by Bharti Airtel to set aside an award made by an international commercial arbitration tribunal in favour of Econet.

Econet is now seeking compensation in excess of US$3 billion for damages following the sale of the Nigerian mobile network against its wishes. The size of the actual damages has yet to be assessed by the court.

The basis of Econet’s claim is that its five per cent stake in Econet Wireless Nigeria (later Celtel Nigeria, and currently Airtel Nigeria) was unfairly cancelled when Zain Group took control of the Nigeria operation, so any decision made since then without it, including the later sale to Bharti Airtel, is void.

An international tribunal found multiple breaches of a shareholders’ agreement by both the selling shareholders and Celtel Nigeria, now Bharti Airtel Nigeria, ordering them to pay compensation to Econet.

The ruling said that the purchase of a 65 per cent shareholding in Nigeria’s second largest mobile operator by Celtel violated the pre-emption rights of existing shareholder, Econet Wireless. Celtel’s then parent company, Zain Group later sold the controlling stake to Bharti Airtel, and is reportedly liable for any costs and payments arising out of Econet’s litigation of the case.

Having spent a significant period of time working in the telecom space in the Middle East over the last decade, Gegenheimer is no doubt aware that the complexion of the industry is changing drastically as market dynamics alter rapidly and competition increases. Growth can no longer be taken for granted, and most important is the creation of a cohesive organisation that is confident in its plans and resolved in its actions.

Scott Gegenheimer

Gegenheimer holds a Bachelors of Science in Finance and Management degree from Northern Illinois University and an MBA from DePaul University in Chicago.

He is a telecom veteran of over 24 years’ experience, with a track record of impressive results, and a good portion of his time spent in Kuwait and other places in the region.

He is a native of the US and prior to joining Zain Group spent the last decade in various senior management and leadership positions at culminating in him having been CEO of Wataniya Kuwait. He has spent time working for technology heavyweights including Cisco Systems and Motorola, and has also enjoyed a stint in the financial services industry in the US.

Gegenheimer has been board member at Tunisiana, Tunisia and United Networks, Kuwait, since 2008.