Kuwait's Zain should remain for sale despite the death of Nasser Al-Kharafi, one of telecom operator's top shareholders and former chairman of the Kharafi group.

"It all depends on who succeeds Kharafi, but Zain is likely to still be up for sale," said Irfan Ellam, Al Mal Capital vice president in Dubai.

"It depends on the financial situation of the Kharafi group. Assets could be sold to pay down debts."    

The group's interests span real estate, retail and financial services, but these were hit hard by the financial crisis and it has direct and indirect liabilities likely to total at least $5 billion, said Naser Al-Nafisi, general manager for Al Joman Center for Economic Consultancy in Kuwait.

A Kharafi consortium had agreed to sell a 46 percent stake in Zain to Etisalat for $12 billion, but the UAE firm scrapped its bid in March and a similar deal with an Indian-led group also failed in 2009.

Yet analysts said Kharafi's Zain stake -- estimated to be 20 percent -- was still for sale despite these setbacks and Kharafi's death is unlikely to change this.

"He had a powerful influence and a special charisma -- his brothers and sons will not carry the same," said Nafisi.
   
"Kharafi borrowed to get the Zain shares and borrowed to speculate in other investments. Kharafi has a lot of debt and Zain is a big liquid asset and some of its other assets are not so liquid."    

Moody's downgraded Kharafi unit National Industries Group (NIG) in March, citing concerns over a $475 million sukuk and warning the firm was highly leveraged.

Kharafi's Etisalat deal was bitterly opposed by some major shareholders and last week the group strengthened its grip on Zain, with Nasser's son Bader Al-Kharafi joining Zain's board and opponent Sheikh Khalifa Ali Al-Khalifa Al-Sabah removed.

New Kuwait market rules require bidders for more than 29.9 percent of a listed firm to extend the offer to all shareholders, preventing a deal like that agreed with Etisalat.

This could spur Kharafi group to sell just its own stake in Zain, but this would likely command a much lower price because it would not offer management control.   

Etisalat may return with a revised bid. Kuwait's government is unlikely to sell its estimated 30 percent stake, so the UAE firm need only potentially fund a 70 percent stake purchase.

As a former monopoly, Zain's sale may yet prove problematic and so another option would be for Kharafi group to push through further asset sales.

In 2010, Zain sold African assets to India's Bharti Airtel for $9 billion and has agreed to sell its stake in affiliate Zain Saudi to joint bidders Kingdom Holding and Bahrain's Batelco for $950 million.   

"Selling assets would be a way for shareholders to raise money without triggering a buyout of the whole company," said Martin Mabbutt, Nomura telecoms analyst.  - Reuters