The Orascom Telecom Holding Turnaround 2002 and beyond

The Orascom Telecom Holding Turnaround 2002 and beyond

Orascom Telecom Holding was formed in early 1998 and with the launch of Mobinil in Egypt it grew rapidly with further acquisitions of Mobilink in Pakistan, Fastlink in Jordan, and the Telecel portfolio across Africa. In 2001 it also bid US$ 738 million to acquire the second license in Algeria and US$ 454 million to acquire the second license in Tunisia. 

This rapid growth strategy impacted on the consolidated and standalone gearing ratio, where most of the loans to expand had been acquired on the back of the share value of the Orascom Telecom IPO which initially soared but with the 2002 markets downturn it induced a rapid stock price fall of 80%, reducing capacity to raise equity. Pressure on the holding level balance sheet raised concerns about capability to meet mid term commitments under the  then  financing arrangements. A creditors committee was formed where all the lending banks and the main suppliers who had extended suppliers credits were now demanding repayments which were not easy to service. Share price which peaked at US$40 after the IPO was now at 40 cents.  

Amongst many steps taken by the Group CEO and the Board in restructuring management, Zouhair Khaliq was brought in as the new Group Chief Financial Officer with a mandate to restructure the balance sheet and the loan profile of Orascom. Zouhair led the finance team over a period of 15 months to form and execute a strategy to radically change the shape of the Company and reorganise the financial situation. This required some very bold and difficult decisions across the Group.   

It resulted in a complete restructuring of the OT portfolio, a capital increase, divestiture of the  Telecel Portfolio in Africa, divestiture of other non core assets and subsidiaries, a complete rescheduling of supplier loans, rescheduling of bilateral loans through long term syndication with Bank du Caire and Bank Misr, drastically improved Operational Controls and an effective system up streaming of cash from subsidiaries in the form of management fees and dividends.

After months of difficult negotiations by the Group led by Zouhair, with banks and creditors on the one hand and potential buyers on the other, it was successful in selling down its Portfolio in Africa, its licenses in Syria, Yemen and Jordan. With these divestments the Group was able to put substantial cash on the table to be able to successfully re-structure its debt profile and re-focus on a growth strategy. 

As part of this new growth strategy the Group decided to focus on a market of over 300 million in 6 countries versus 400 million spread over 19 countries in 2001. The MENA region offered higher GDP per capita, better propensities to consume telecom services and a reduced competition when compared to Sub-Saharan Africa. Focus on this region contributed to improve the company’s ability to generate better returns on cash invested and in parallel existing MENA operations shifted from an aggressive market share buildup strategy in 1999-2001 to focus on value creation. 

In addition Zouhair, worked across the Group to institute new very well defined systems and processes for a pro-active participation in preparations of Annual Budgets, monitoring of bottom line and key parameters on a monthly basis, monthly & quarterly operational reviews and analysis through meetings  and conference calls, regular internal audit processes in place, a critique and feedback to senior management and guidance on OT bottom line requirements and an emphasis on value generation and strong EBITDA growth through out the Group. 

Over the next 5 years the Orascom Group grew to become the fastest growing and most profitable mobile operator across MENA and Pakistan, adding Bangladesh to its portfolio, diversifying in to undersea cable and broadband, banking and mobile payments. Share price rose to peak at US$ 84 at the height of the Telecom boom in 2007-2008.