UAE bags $10bn nuclear loan and bids $10.5bn for Zain
Posted on 09 October 2010 with no comments from readers
For a country that suffered a huge property crash last year and a massive drop in oil revenues the UAE still appears in robust financial health as shown by its capacity to arrange a $10 billion loan for Abu Dhabi’s nuclear power program from Korea this week, and to bid $10.5 billion for the Kuwaiti telecoms group Zain.
The Zain acquisition would make the UAE telecoms giant Etisalat one of the biggest telecommunications companies in the world with 133 million subscribers in 25 countries across the Middle East, Africa and Asia.
Acquiring market position
Terms and conditions of the deal are still unknown, despite Etisalat’s status as a publicly listed company, so it is hard to judge whether the deal is sound or not. On the one hand, emerging market equities are highly valued at the moment, so there is the fear that the Kuwaitis are selling out while the opportunity presents itself.
Then again this would not be the first time that the true, long-term value of a mobile telephone company is being underestimated. People like to talk, and the sale of pre-paid chips in the emerging world is a wonderful business.
And given the growth and population outlook of Zain’s geographical coverage, Etisalat’s enthusiasm is understandable. Besides overpaying to secure a unique telecoms footprint can still pay dividends over time. This is using financial strength to secure market position.
Great deals
Yet this deal is also a reminder of the immense financial strength of the Emirates. It puts the IMF estimate of Dubai’s debts of $109 billion into some perspective. Moreover, from a long-term perspective both buying Zain and investing in nuclear power makes sense: you just need the money to do it.
The logic of an energy rich country building four nuclear power stations is lost on some people but actually very simple. Once the oil price is above $45 a barrel it is cheaper to generate electricity from nuclear power than oil. The UAE is investing in efficient energy infrastructure with its Korean built, and financed, nuclear power stations.
And financing half the cost with loans also raises the return-on-equity. The Export-Import Bank of Korea is perfectly happy to provide this finance for nuclear power, ironically enough because Abu Dhabi sits on some $3 trillion worth of oil.
