Azmi Mikati defends Investcom’s IPO

The CEO is unrepentent about his company

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E There has been a lot of reaction to the IPO. Many within the sector claim it was nothing more than a private placement disguised as an IPO, designed to drag in small investors to hype the event. Can you comment on this?

There was no need for any hype. We knew very early on that there would be a lot of demand for this offering. We went on a road show in Europe and met a lot of institutional investors over there who liked the story, so it wasn’t over-subscribed through hype; it was over-subscribed because it was a story of growth, a company that has a very strong track record, an excellent management team and a company that is operating in markets with a lot of potential. The fundamentals are there. We are not looking for hype. Anyway, overall demand came from Europe but being a Middle Eastern company with its roots in Lebanon we had demand here too. Far from being a private placement, it was a full public offering in which 60% [of demand] came from Europe but [in the end] we allocated 50% to the Middle East and 50% to Europe.

E So why was there no, or virtually no, Lebanese allocation?

Working with our global coordinators, we allocated mostly to institutional investors – Middle Eastern or Europeans – while a small portion went to individuals, mostly to our employees. We had a lot who requested allocation and they are the ones who deserve the most because they are the ones who have contributed the most to the success of the company. So most of the individual allocation went to those who have worked for the company and who have been with us for a long time.

E So what do you say to the many people, Banque Audi customers in particular, who broke time deposits and who received no allocation at all?

It’s an open market. There is nothing stopping someone buying shares on the open market even if he has not been allocated. These are shares that are tradable in volumes on the LSE and very soon on the DIFX (Dubai International Foreign Exchange). But in terms of allocation, we were way over-subscribed. Tough decisions needed to be taken and we decided to allocate to institutional investors. E But surely if there is a heavy over-subscription, allocation is reduced accordingly and everyone gets something, don’t they?

This might be the way it works in the Middle East but this is not the way it works in Europe. We did an IPO based on international standards. You cannot expect an investor X to come and demand his 10% allocation in the same way investor Y can come in and get his 10% allocation. At the end of the day you want a large investor base and like I said, tough decisions had to be made when we made that allocation in coordination with the global coordinators and this was the outcome. Today if somebody wants shares, let him buy them on the open market. So if I knew what the real problem is [that you are raising] it would be easier for me to discuss it.

E Have you felt any of the negative feedback?

I know a lot of local investors were unhappy because they did not get shares. I can understand their unhappiness, I really wish they could actually have been allocated and I hope they can become shareholders in the future – that they believe in the company and buy shares on the market.

E Roughly 40% of your company’s revenue comes from Syria. Given the international interest in that country, wouldn’t you say that this puts Investcom in a precarious situation should any embargo occur?

I don’t see why. In the countries in which we operate, there is always a level of risk. We operate in emerging markets, but these risks are more than compensated by the growth that these countries offer. So yes, there is risk but this is more than compensated by growth and profitability and investors do understand that. I don’t know if you have seen our prospectus; we have done an offering based on international standards. Everything is disclosed and this is key to us … that we operate in full transparency … and coming back to the first issue, we clearly said that the allocation is discretionary. It is not a proportional allocation and people should understand our position.

E Banque Audi was particularly embarrassed by the share allocation. You have a close relationship with the bank. Can you understand their position?

We had, have, and will continue to have an exceptional relationship with Banque Audi. Banque Audi was a key element in our success. They financed a lot of our operations when other banks were unwilling to take the risk or did not see the potential and Audi was beside us. Audi cares about its customers.

E Given your ties with Syria and the fact that there was no Lebanese allocation, some people are drawing unfavorable conclusions. Can you comment on this?

I don’t get what conclusions they are making. You say there was no Lebanese allocation but most of our employees are Lebanese and most of the non-institutional allocation went to Lebanese. I can’t make any correlation with what you are saying.

E Investcom shares are currently trading at around $13?

Around $13.50 to $14.

E They peaked at $15?

Yes, that is correct.

E What do you say to those people who say the current price is an indication that the offering was an opportunity to turn a fast buck and not a commitment to the long-term growth of Investcom?

These are not the type of investors we are looking for. I am not looking for flippers, in and out to make a quick buck. I am looking for investors who believe in the company, its strategy, management team and want to make more than a buck over a week or a month, but want to see growth in the long term. These are the sort of people we want as our shareholders.

E Moving on to your operations, how confident are you about developing under-developed markets such as Guinea Bissau, which has a population of 1.5 million and a GDP per capita of some $180?

Guinea Bissau is a good example. We started our operations in August 2004, and in less than a year we were EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) and net income was positive on a month-to-month basis by July of this year. Countries like that are small but with high potential. They are highly under penetrated and we have the expertise to make them profitable and have them contribute to the net income of our business.

E Do you really believe that such markets will make you more competitive?

What do you mean by more competitive?

E Well these, as you say are underdeveloped markets. Where is the competition to develop your edge?

This is the nature of our business. Look at the contribution to the country, its population and its economy. There is a direct correlation between the direction telecom penetration rate and GDP growth. It is obvious we are contributing to regional development. It’s a way to have people talk to each other. So direct economic impact is profitable for us as a group. In Ghana we are up against three international players Hutchinson, Millicom and Telenor and yet we have held our position as the market leader with a 67% market share. So you can’t say it’s easy prey.

E You currently operate in 10 countries?

We operate in eight countries and we have two new licenses so within the next six months we will [be in ten].

E The word on the street is that you are eyeing up Saudi Arabia. Can you comment on this?

Well, we are looking for non-organic growth. We want to put our feet in countries with a relatively low penetration rate that have growth potential as well as countries that have a compelling competitive environment. If this profile is met, then we would be very interested.

E So does that mean you are looking at Saudi Arabia?

If you look at the profile of Saudi Arabia, it does meet these criteria.

E Currently over 70% of your revenues originate from only two of your markets, namely Syria and Ghana. How will your revenue distribution change in the next two years?

Sudan, Yemen and to a lesser extent Afghanistan will become the bulk contributors along with Ghana and Syria. The latter two will be then contributing around 50%, so there will be more of a spread.

E How challenging will Afghanistan be?

If you look at Afghanistan it fits our market criteria.

E You are really starting from scratch.

Totally. It has a population of 30 million, lots of growth potential and we believe it’s a great opportunity and we are looking forward to starting there.

E What about security?

Security is a concern in a few of the countries we operate in, but it is still manageable and we will deal with it like all the multinationals that operate in these environments.

E As Investcom Group, you started operations in Lebanon in 1982 under Inteltec. What sort of telecommunications engineering services did you offer and most importantly to whom? How successful was it?

As a corporate entity Investcom was founded in 1984. The group began its telecom adventure back in 1982. The partners lived in Abu Dhabi but moved back to Lebanon. They found the telecom situation very bad due to the war. We started selling and installing satellite phones designed for ships on office buildings as a sideline. We installed about 50 phones but they were very expensive, about $50,000 each with calls costing $10 per minute. Eventually we installed the first cellular network in the 1990s and we moved on from there.

E All of your operations are centralized via Beirut, how does this affect your operations across the board and do you have one similar strategy for all the countries you operate in?

We are headquartered in Lebanon but all our operations have their own structure and their own team and whenever there are value-added opportunities that can be created, then those functions are centralized in Lebanon.

E Can you tell us about Mednet, your international telecommunications operator based in Monaco? Is it successful, how does it operate and who does it serve?

Sure. Mednet is the international arm of the Investcom group and what Mednet does is it aggregates and carries traffic from the operations where we have the licenses to the outside world and at the same time it carries the traffic of other international carriers such as France Telecom, Telecom Italia, AT&T and BT into the markets where we have our own networks. It’s a long distance carrier based out of Monaco and contributing positively to the overall income of the group. It’s very successful.

E Finally, how will the IPO proceeds be used?

For non-organic growth. If we wanted just to go for organic growth we have a balance sheet that is very strong and under-leveraged and positive cash flow coming from our operations, so we wouldn’t have needed the IPO. The proceeds will be used to go after opportunities that fit the criteria we have discussed.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail