Telecoms group Veon has increased its EBITDA guidance for FY 2019 and is looking beyond connectivity for future growth.
Veon serves over 200 million subscribers, mainly in central Asia, and things seems ticking along nicely. “Veon is performing well in the current financial year against our 2019 targets and today we are increasing our EBITDA guidance for FY 2019 from low to mid-single digit growth to at least mid-single-digit growth,” said Ursula Burns, Group Chairman and CEO. “Previous guidance of Revenue growth and Equity Free Cash Flow remain unchanged.”
Despite that, Burns reckons Veon needs to diversify beyond mere connectivity in the pursuit of future growth. A new strategy framework is built around three pillars: connectivity, new digital services and future assets that open up adjacent growth opportunities. This essentially seems to be a version of the kind of 5G strategy most telecoms groups are advocating.
“Our new strategy framework underscores the growth opportunities we see beyond our connectivity business and aligns Veon’s ambitions with our industry’s future development,” said Burns. “I am confident that the greater flexibility in how we allocate capital will allow us to execute on these opportunities, reinforcing our market-leading positions and maximizing shareholder returns over the longer term.”
“Over the next 18 months, there are opportunities that we believe will best serve investor interests over the medium-term,” said Alex Kazbegi, Group Chief Strategy Officer. “We are excited about the opportunity in our core Russian market, which we believe can be best accessed through a short-term increase in network capex to allow us to drive medium-term service revenue growth.
“In Pakistan, there may be the opportunity to increase our stake in the business through the existing put option with Warid. We also believe stepping up our investment in Digital Financial Services in Pakistan is an exciting first step in Future Assets.”
Veon has announced it has backed out of plans to acquire GTH assets in Pakistan and Bangladesh due to the falling Pakistani Rupee and the reaction from GTH shareholders.
The acquisition was initially announced back in July to improve Veon’s footprint in emerging markets. The purchase was supposed to be funded through the €2.3 billion sale of Veon’s stake in Wind Tre to CK Hutchison, though the stars don’t seemed to have aligned for this bit of business.
The Pakistani rupee fell another 4% on Wednesday, setting a new record low, as the country continues to battle debt. The International Monetary Fund has promised funds to bailout the Pakistani government, though it appears this will not be enough to cover the shortfall. Analysts are predicting more troubled times ahead for the currency and Pakistani economy.
Aside from the gap in the spreadsheets, there are concerns the US would block any financial aid offered by the IMF due to concerns over Chinese investment in Pakistan in recent years. Considering the anti-China rhetoric which is gathering momentum in the US, this would hardly be a surprising move.
Coupled with a lack of approval from minority shareholders for the transaction it would appear Veon has had enough, perhaps considering the hassle too much in comparison to the gain.
Malaysian telco Axiata, via its subsidiary Edotco, is buying the tower business of the largest Pakistani operator Jazz.
The deal involves a whole bunch of holding companies and subsidiaries. Axiata’s tower subsidiary Edotco is technically doing the buying via its Pakistani subsidiary Tanzanite, while Jazz is actually selling its wholly-owned tower company, Deodar. Jazz was formed from the merger of Mobilink and Warid and is co-owned by Veon and Global Telecom Holding. The acquisition is being done in partnership with Pakistani investment group Dawood Hercules. Clear enough?
“We are pleased to be able to consolidate our expansion into Pakistan with this acquisition,” said Suresh Sidhu, CEO of Edotco. “The acquisition of Deodar is a critical part of our growth strategy and ambition to position Edotco as the leading independent telecommunications infrastructure services provider in Asia.”
“This transaction is highly value accretive for Veon and GTH and a further execution of Veon’s asset light strategy,” said Jean-Yves Charlier, CEO of Veon. “It also reflects the start of a long-term partnership with a strong counterparty with significant experience in tower management.”
The $940 million deal is expected to close later this year and the 13,000 sites apparently elevate Edotco to eighth place among the world’s top tower companies. It will presumably then change Jazz to use the towers so this seems to be a classic sell-and-lease-back deal.