Saudi Telecom creates new $6 billion towers firm

The telecoms operator announced on Monday that it will merge its TAWAL unit with Golden Lattice Investment Company (GLIC), the towers business majority owned by Saudi Arabia's Public Investment Fund (PIF), itself STC's major shareholder.

TAWAL is the bigger partner in terms of footprint, but PIF will hold 54% of the merged entity to Saudi Telecom's 43.1%, with the remaining shares in the hands of GLIC's minority shareholders.

The new entity, which doesn't yet have a name, will have an enterprise value of US$5.85 billion as a result of the deal. It will hold a portfolio of 30,000 towers and generate annual revenues of around $1.3 billion, which its parent companies claim will make it one of the largest towers companies in the world.

Their maths is perhaps a little optimistic. The world's ten biggest towers operators all have in excess of 40 million sites, with the top two, American Tower and Indus Towers, claiming in excess of 200,000, according to data published earlier this year by Dgtl Infra. American Tower generated revenues of more than $11 billion last year. Those 30,000 towers put it about 15th in the world, which is on a par with the 30,000-tower, $2,2 billion enterprise value business Ooredoo, Xain and TASC are in the process of creating, having inked a deal in December; they too claimed to be forming the biggest towers company in the Middle East and North Africa.

Hair-splitting aside, this new Saudi towers company will be of significant scale and that is what its parent companies are looking to achieve by merging.

"Combining TAWAL and GLIC is a stepping-stone to consolidating the Saudi tower market and driving further efficiencies and operational excellence to deliver superior experiences and value for customers," said Motaz Alangari, STC's Group Chief Investment Officer.

But arguably just as important is the fact that the deal could serve as a springboard for further international expansion.

"These agreements are part of STC Group's continuous endeavor to grow and maximize value in the most sustainable manner, by recycling capital while retaining ownership in strategic value-added assets to benefit from the return on these assets and enable expansion into new domains," Alangari also said, the key clause there being that very last one.

This time last year TAWAL brokered a €1.2 billion cash deal to buy 4,800 telecoms towers in Eastern Europe – Bulgaria, Croatia, and Slovenia specifically – from United Group. The deal marked the passive infrastructure specialist's first foray into Europe and, as we noted at the time, there was a hint that there could be more to come.

Both TAWAL and GLIC have made it clear that they remain keen on further expansion. "We have ambitions to develop the telecom infrastructure in KSA and to grow regionally and globally in the next few years," reads the mission statement on GLIC's website, for example. Meanwhile, STC has demonstrated in recent months that it is looking at European growth. The telco raised a few eyebrows when it bought into Telefonica in September, a move that encouraged the Spanish government to buy up shares in the telco too, preserving national security being its prime motivation.

This towers deal, which the companies expect to close in the second half of this year, regulatory hoops and so forth permitting, could well create a stronger Saudi Arabian company with an appetite for overseas growth.