Prime time for Dubai’s OSN to list shares, say media analysts

The time is right for an initial public offering (IPO) of OSN, commentators say, after at least one aborted attempt at a share listing by the Dubai-based TV broadcaster.

It emerged on Saturday that Kuwait’s KIPCO, which owns 60.5 percent of OSN, has hired the financial group Rothschild to advise on an IPO of the pay-TV company. The Saudi-based Mawarid Group owns the other 39.5 percent of OSN.

An OSN spokesman insisted that “no decision has been taken regarding the issuance of an IPO”, adding that the Rothschild advisory process is “at a very preliminary stage”.

But media commentators say the time is right for OSN to pursue an IPO, saying there is a window of opportunity for the shareholders to cash in, as well as for the company to raise funds for TV rights acquisitions.

“It’s probably a very good time to do an IPO,” said Ali Ajouz, a Dubai-based media consultant and former employee of OSN.

“OSN claims to be profitable, and if it is it’s the right time to IPO… It certainly makes business sense for OSN and the OSN shareholders,” he added. “The shareholders would get more return on their investment, and it would allow them access to cash to invest in the business.”

Ajouz said an IPO would allow OSN to acquire more rights to international TV shows, as well as invest in more sports and Arabic content.

Thomas Kuruvilla, managing director at Arthur D. Little Middle East, agreed that an IPO was likely.

“Is OSN a good candidate for IPO? Yes. Is the IPO likely to happen? Yes,” he said. “Although OSN has recently seen tremendous growth in earnings and market share, the additional capital is likely to be used for further expansion in the region and possibly acquisitions.”

Ajouz said there have been two attempts at an IPO previously. One attempt was made by Showtime, and predated the 2009 merger with Orbit that formed OSN. Ajouz said another IPO was considered after that merger.

“Showtime tried before the merger and [OSN] tried after the merger,” he said. “An IPO was always part of the plan.”

Potential stumbling blocks include low demand from investors, or a below-expectation valuation of OSN by the banks, Ajouz said.

“Both sides of the shareholders want to cash in… They’ve pumped billions of dollars into this business over the years. So it’s about time to get some payback,” he said.

“It won’t happen if the valuation is less than the shareholders believe it to be… The banks would have to come back with a valuation in excess of $2 billion.”

The OSN spokesman told Al Arabiya that “there is no current discussion as to valuation of the business.”

Nick Grande, the managing director of Channel Sculptor, a television consultancy in Dubai, said Showtime’s previous attempt at an IPO involved a listing on the London Stock Exchange (LSE).

“In March 2006 Showtime was three days away from a London Stock Exchange intention-to-float announcement. Circumstances prevented the float from going ahead at that time,” he said.

Grande said he would expect OSN to consider a Middle East listing in any renewed IPO attempt.

“There is no reason why OSN should not float on a regional or international exchange if, as they claim, they are profitable and growing. Having had personal experience of the rigors of the LSE flotation process, my guess is that OSN might prefer to list on a regional exchange this time around,” he said.

Kuruvilla said that a London listing should not be ruled out. “Given the stagnant UAE stock market and excessive price controls by the [Securities and Commodities Authority], there is no reason to presume that the listing will happen in UAE and not a more mature market like London for example. Rothschild has probably been hired to answer this question and more.”

A share listing by OSN would make it the just the second mainstream media company in the Middle East to go public, after the Saudi Research and Marketing Group (SRMG) listing in 2006.

Grande said this was because very few Middle Eastern media companies turn a profit.

“The IPO process involves a rigorous examination of the company’s financial records over several years in order to validate these requirements,” he said. “Almost all TV businesses in the region are unprofitable, and all struggle to maintain scale in the face of irrational competition in the [Middle East and North Africa] TV industry.”

An IPO of OSN would bring benefits to the Arab TV industry more generally, Grande added. These would include attracting interest from international investors, and bringing more transparency to the pay-TV industry.

OSN does not publically disclose how many subscribers it has across the Middle East and North Africa. But Informa Telecoms & Media estimated in 2011 that OSN has 552,000 subscribers, saying this is forecast to grow to 995,000 by 2016.

The scrutiny that comes with a public share listing would probably force OSN to disclose such figures.

“For the first time we would know, for example, exactly how many subscribers OSN has,” said Grande.