Interview with Shaikh Mohamed bin Isa Al-Khalifa, CEO of Batelco Group
Batelco Group's financial results were marked by sound financial figures and impressive operating performance across its group operations with over 40% of revenues generated from markets outside of Bahrain. Are you pleased with the strides the group's overseas operations are making and what are the aspirations going forward?
2012 has been a challenging year for Batelco Group; nevertheless, the strength of the group and the strength of its presence in the markets that it operates in have given us the excellent results that we achieved in 2012. I'd like to highlight that we grew our subscriber base to reach 7.8 million in 2012 and we are very much encouraged by the results that were achieved by the year's end. It is also important to note that the acquisition of the Cable & Wireless (CWC) in 2012, which will close in 2013, will further increase the strength and it will give us an additional eleven markets to operate in. This will place Batelco as a global player as opposed to just a regional player in the Middle East.
Are you looking to increase this 40% of revenues?
Absolutely and we hope to do this through the diversification into new markets. The 40% that was generated from the international operations of Batelco is going to be increased significantly in order to also minimize the effect of a single market dominance of the revenue base of all our operations. So we're looking forward with great aspirations to the future. The international contribution to operations was in the range of 40% in 2012. Through the acquisitions that we have embarked on in the international markets, we are adding an additional eleven new markets which will further diversify the revenue base that is generated outside of Bahrain. We will see that increase the share of our revenues generated from the international markets and that's really a main reason why we have embarked on expanding the scale of our operation into these new additional markets. These are stable markets that will give us good, solid returns and strong cash flows to make sure that we can continue on our dividend payment policy to our shareholders.
Let's talk about your dividend policy for 2013. What is the outlook?
It is very important to highlight here that the company has been paying out strong dividends and it is the intention of the company to keep on giving out strong dividend payouts for our shareholders. That's why when we embarked on the international expansion, we chose operations that are not green field but they are operating companies with strong cash flows that will further support the need for us to continue paying out the dividend. I can't go into further details on what the 2013 numbers are going to be because this really depends on the performance in 2013; however, we are confident that the policy of paying out dividends to our shareholders will continue in the near future. Here it is very important to highlight that over the past seven years the group has paid out over one billion dollars in dividends to our shareholders.
Your rating by Standards & Poor and Fitch has been upgraded and you are also seeking to raise financing through a bond issue. You have appointed Citibank and BNP Paribas as your bankers to raise these funds. Can you share some details on the bond issue?
Batelco has always been at the forefront of innovation. We have always strived to provide our markets, especially strong markets such as Bahrain, with the latest technology. The launch of the 4G network comes at the right time when the market has seen significant growth in broadband usage.
The bond issue is a very important step for us. First of all, our balance sheet has virtually no leverage on it and we wanted to efficiently use our balance sheet in order to raise funding for the acquisition of the cable and wireless. Therefore, we always keep in mind that in order for us to maintain the same level of rating by the rating agencies we should always limit how much borrowing we do within the market. There are certain metrics that have to be followed in order to keep the same rating going. With the bond issuance, we will get international recognition for a company based in Bahrain that goes out to the international markets and raises funds through a rated bond issuance. We are looking for that bond to also be listed in an international stock exchange and we are targeting the London Stock Exchange to list our bonds. We are embarking on a road show in the coming weeks in order to expose the Batelco name to all the potential investors who will be looking to buy the bond issuance and take exposure to our balance in a higher capital structure as opposed to being in the equity of the company. It will build the reputation of Batelco Group within the international financial markets and we are looking forward to that in the coming weeks.
What has been the preliminary response by the international investment community to your bond issue? Are the investors cautious? Are they optimistic? What is the sentiment?
So far the reading is that the investors are very much interested in looking at our bond issuance. The company, as I have said, is a company with a long history and track record of paying out dividends, with strong cashflows, and that's really what the bond community is looking for. Solid balance sheets, solid operations, strong markets that it operates in, and strong positions – we're either number one or number two in each of the markets that we're acquiring or operating in today. So it's all good measures that will give confidence to the financial capital markets that this company can go out and borrow. We are also an investment-grade rated company which gives further confidence within the financial community.
Why have you chosen to go for a bond issue instead of raising capital by equity? Is the world now looking more for bonds?
When we look at our balance sheet, the company has been well capitalized for a number of years and for us to efficiently use our balance sheet, we need to add leverage in order not to overburden the balance sheet with excess capital. So we are not at a stage where we need to raise capital in order to increase the equity of the company. That's why we tap into the bond market. It will give us financing which will be paid back over a number of years and then give us further reputation within the financial markets that we can tap into that financial market whenever we need to raise further funds before going back to the shareholders in order to increase capital and equity of the company.
What are the plans for capital management for 2013?
The main plan of course is to raise the bond. That's the first activity. As we are also looking at other opportunities within the mergers and acquisitions space, we look to further enhance the financial position within our balance sheet. We may go back to the market if there is a need to raise further funds for further acquisitions.
Internally, what is the mood of Batelco as you enter a new market?
We are all excited. We are looking at these new markets to give us new products and new areas of operation that are adjacent to the normal core telecommunications operations. So we are all excited and we think that since we are coming from an island operation, most of the assets that we are acquiring are similar island operations as well. So we share the same culture and we all happen to come from the background of cable and wireless originally so we think that this is a family putting the family back together again and we are looking forward to that.
Do you still want to grow the group further after these acquisitions? Is it a long-term strategy to focus on island markets?
The focus is open to whatever opportunities may come. We always look according to our strategy into increasing the scale and scope and strengthening our operations so whenever there's an opportunity for us to enter a new market or find a new company that provides a new product that we can offer then we look at that seriously. As I have indicated, we are always in the market looking for opportunities and there may be something coming towards the end of the year.
There are numerous challenges that may be associated with your first acquisition outside of Bahrain. What are the challenges and how are you dealing with them?
This is not the first time that the group has entered into an acquisition. We acquired Umniah in Jordan in 2007. Umniah was the fourth operator in that market and today it's competing for the number two position. We grew the subscriber base from in the hundreds of thousands when we acquired it to the 2.3 million subscribers that it has in the Jordanian market now. So given that these acquisitions that we're making are established companies, we don't think that there's a high risk in consolidating these operations into the operations of the group. In fact, we look to utilize the synergies that are present between the different operations, especially in areas like procurement and IT where we can add value to these operations and increase the profitability through the cooperation between the different group of companies.
We interviewed Umniah in Jordan along with Zain and Orange and they really aggressively came to the market but Umniah used the low-cost model. They built new infrastructure, new services, but still at a very reasonable price. Is that your strategy you would be using in other markets or do you use different strategies for each market?
Each market has its own strategy. If you are the challenger in the market you will behave differently and if you are the incumbent in the market then you will behave another way. What's beautiful about this portfolio and the experience that Batelco Group had is that Batelco is the incumbent in Bahrain and yet it was the challenger under Umniah in Jordan. So we bring in both sides of the equation and we think that through our management style, we would like to have the opportunity and we will show to our shareholders that we can achieve the targets that were set out in achieving the revenues and profitability that we set out in the beginning.
There are many other competing players in the market aside from the global telecom groups. There are regional, very strong players. How does Batelco differ from these players? What is really unique about you that provides a competitive advantage?
In any competitive market, you have to differentiate yourself. We have chosen to differentiate ourselves in Jordan by being the value provider for our customer base. In Bahrain, it's the quality and the high-speed access as we have today launched the 4G network. We are the first to launch it in the Bahrain market so this gives us a leading edge within the Bahrain market. Other markets of course will be addressed according to the competitive environment that we are facing and we think that we can achieve the targets that we'd like.
Can you give us more details about how you are going to compete with the new acquisitions in the new markets?
I will leave the details until we actually get into the operations because we are still early in the acquisition stage. We haven't closed yet and we expect the closing to happen anytime now. As soon as we close these deals we will be working together with the local management to make sure they excel and continue the progress that they have seen in the past.
What are your plans regionally in the GCC?
As you know, the group has operations in Kuwait, Jordan, Saudi Arabia, Egypt and Yemen. As and when opportunities may arise, of course we will look at them, value them and see if they add value to the operations of the group and then we will take advantage of that.
Batelco is not only a telecom provider but it provides different services. Is everything on the table?
I would like to say that our strength today is in mobility so when it comes to providing solutions for the enterprise market, we are also strong in that area. We would like to build on that strength and see if we can address the need for high-speed broadband connectivity anywhere in the markets we operate in.
Can you give us more details about the innovation and 4G services in Bahrain? This shows Batelco is at the forefront of innovation.
Batelco has always been at the forefront of innovation. We have always strived to provide our markets, especially strong markets such as Bahrain, with the latest technology. The launch of the 4G network comes at the right time when the market has seen significant growth in broadband usage. Batelco has the strength in providing wireless broadband through its 4G network. It also has strength in the fiber cabling that has been done so far in Bahrain and it looks to grow the fiber connectivity to be in line with the target and aspirations that Bahrain as a country has in terms of achieving high-speed throughput for all businesses as well as residents in Bahrain.