Saudi Arabian operators Mobily and Zain have received the green light from the country’s telecom regulator for a plan to merge their towers assets and seek external investment.

And it seems that that third party will be passive infrastructure specialist IHS, although the company will not be permitted to take more than a minority shareholding.

The telcos announced they have received formal approval from the Communications and Information Technology Commission (CITC) to merge their telecoms towers into a new commercial entity and to sell that entity to a consortium of new owners, of which they themselves will be a part.

In addition to the two telcos, the consortium will comprise investment group the Raidah Investment Company (AlRaidah) and towers specialist IHS…or possibly another third-party investor. Wading through the complexities of the telcos’ announcement on the matter, it is clear that the regulator has given the go-ahead for Mobily, Zain KSA and AlRaidah to form a grouping with “a potential investor.”

Mobily specified that it is “still evaluating and studying the offers submitted by all potential investors.”

As it announced in July when it first disclosed its intention to merge its towers with those of Zain, Mobily said the telcos still have a number of options open to them, including selling their tower assets to external investors, merging them into a single company with other investors, or having a third party operate the towers on their behalf.

Whoever the third-party investor turns out to be will have to adhere to the CITC’s restrictions though.

The regulator stipulated that Mobily, Zain KSA and AlRaidah must own the majority of the new company’s shares between them, with IHS – or another investor – taking a minority stake. It also noted that the new entity will need to clear a number of other regulatory hurdles before it receives a final approval.

As with telecoms companies all over the world, Mobily and Zain are looking to extract value from their towers assets. Mobily has on a number of occasions said that its tower manoeuvres with Zain have “the objective of achieving maximum efficiency and upgrading the communications and information technology system,” or words to that effect. Essentially, it is looking to focus its attention and resources on upgrading its network and IT systems, and monetising the passive infrastructure is one way of doing that.

Should IHS prove to be the winning investor, buying into the merged Mobily/Zain towers business would significantly boost its footprint in the Middle East, where currently it operates just over 1,000 towers in Kuwait. The bulk of IHS’s business is in Africa, but it also operates towers in Brazil and elsewhere in South America.

The fact that Mobily and Zain have named IHS at this stage in proceedings suggests that it will emerge as their towers partner in Saudi Arabia. However, a previous deal between Zain and IHS fell foul of Saudi regulators, so there are no guarantees here.

Zain agreed a 2.52 billion-riyal (around US$670 million at current exchange rates) sale-and-leaseback deal with IHS in March 2019 but cancelled the agreement nine months later after IHS did not satisfy all regulator requirements.

Doubtless all parties have learnt from that experience, but there could still be significant ups and downs in this latest towers deal before it gets across the line.