UAE’s Etisalat, Saudi’s Mobily end management deal

The two telecom companies likely to work out new arrangement

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The UAE telecommunications conglomerate Etisalat said on Sunday that its management agreement with Saudi Arabian affiliate Mobily had expired and the companies were working on a new arrangement.

Etisalat, which owns 27.4 percent of Mobily, helped to found the Saudi company more than a decade ago and has played a major role in its management.

But Mobily has been hit by controversy in the last couple of years after it restated 27 months of earnings to March 31, 2015, citing accounting errors due to premature booking of revenue from a promotional campaign. The restatement slashed Mobily's total profits by 3.63 billion riyals ($968 million).

“Etisalat Group and Mobily are currently working on developing a service and technical support agreement which will take into consideration Mobily’s requirements for the coming period given the scale of its operations and customer base,” Etisalat said on Sunday.

Etisalat added in a brief statement, “Etisalat Group and Mobily will continue to work closely and foster the relation between each other to enhance the shareholders’ value of both companies.” It did not elaborate.

In a brief statement of its own, Mobily said its management agreement with Etisalat had expired on Friday “and Mobily and Etisalat Group agreed on the non-renewal of the same”. It did not give any details.

Shares in Etisalat closed 0.6 percent higher on Sunday while Mobily shares were flat in late trade, underperforming a 1.5 percent rise in the Saudi stock index.

“Mobily has reached a level of growth that offers it the flexibility to work independently, and maybe Mobily does not need micro-management from Etisalat anymore,” said Nishit Lakhotia, head of research at Securities & Investment Co in Bahrain.

He added, “For Etisalat, Saudi is a very important country, and it will remain one of their key international operations outside the UAE.”

Etisalat has a substantial representation on Mobily’s board and should therefore retain some influence on Mobily despite the termination of their management agreement, he added.

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