The United Arab Emirates overhauled the board of top telecoms operator Etisalat Tuesday after a persistent profit slump hit the major source of federal revenue. President Sheikh Khalifa bin Zayed al-Nahyan, who is also the ruler of Abu Dhabi, issued a decree appointing Eissa al-Suwaidi as chairman to replace Mohammad Omran, plus six new government representatives to the board of directors.
The changes suggest growing royal dissatisfaction with Etisalat, the UAE’s largest listed firm and a major dividend distributor to the government.
The firm, which is 60-percent government-owned, has reported declining profits in eight of the past nine quarters despite spending billions of dollars expanding abroad, Meanwhile domestic rival du has built up a 47 percent share of the UAE’s mobile subscribers since ending Etisalat’s monopoly in 2007.
“The appointment of the new chairman comes at a time when the federal government is likely to be concerned about Etisalat’s performance and future direction,” said Matthew Reed, a senior analyst at Informa Telecoms and Media in Dubai.
“Etisalat’s financial performance in the UAE has come under sustained pressure as a result of competition from du, while Etisalat’s international operations still only contribute a relatively modest share of revenue.”
Etisalat, the Gulf’s number two telecoms firm, now operates in 17 countries, yet its 2011 annual profit was 34 percent below a 2009 peak and slumped to 2006 levels. The firm’s shares have dropped 45 percent from a 2008 high, making it worth $19.8 billion, according to Reuters data.
Etisalat pays 50 percent of its profit in royalties, or tax, to the federal government, so the operator’s profit slump has hit state income. It paid royalty of 5.8 billion dirhams ($1.58 billion) in 2011, down from 7.6 billion dirhams in 2010 and 8.8 billion dirhams in 2009.
Total federal revenue was estimated to be nearly 41 billion dirhams in 2011, according to an estimate in a recent IMF report based on government data. The UAE may be one of the world’s largest oil exporters, but about 90 percent of its crude reserves lie within Abu Dhabi, which sets its own budget like the other six emirates.
The profit decline has prompted major changes at Etisalat, with a new chief executive, plus heads of finance and strategy all appointed within the past 12 months.
Omran was one of Etisalat’s old guard, joining the company in 1977. He rose to chief executive before becoming chairman in 2005 and was a chief architect of Etisalat’s foreign expansion over the past decade.
That has failed to markedly improve the bottom line – more than 90 percent of net profit last year came from the UAE – and Omran’s departure comes after Etisalat made a catastrophic entry into India.
Etisalat wrote off $1 billion in its Indian venture Etisalat DB before walking away from the affiliate after it was one of several telcos stripped of their licenses in a corruption probe, while the company also scrapped a $12 billion takeover bid for Kuwait’s Zain last year.
Omran’s replacement Eissa al-Suwaidi is not a telecoms specialist, but holds key positions in other Abu Dhabi entities.
He is chairman of Abu Dhabi Commercial Bank and is also director of other government-controlled institutions in the emirate such as International Petroleum Investment Co.
The decree from Sheikh Khalifa also appointed six members – including Essa Kazim, the chief executive of bourse Dubai Financial market – as the government’s representatives on Etisalat’s board.
The Daily Star