Du: the right thing?

Du, the UAE’s second mobile operator, has set a price of AED1.75 a share for its planned AED1bn ($272m) rights issue, which it hopes to launch in June.
An extraordinary general meeting of its shareholders on 11 May voted to approve the rights issue to…

Du, the UAE’s second mobile operator, has set a price of AED1.75 a share for its planned AED1bn ($272m) rights issue, which it hopes to launch in June.

An extraordinary general meeting of its shareholders on 11 May voted to approve the rights issue to strengthen the company’s capital and to help it fund its capital expenditure programme for 2010.

Du’s senior managers told the meeting that the company planned to spend AED2.2bn developing its network this year, slightly less than their plan at the beginning of the year to spend AED2.4bn.

In a statement, Du said that the rights issue would help improve the company’s credit rating to investment grade in the long term. The statement failed to say what other measures the company would take to improve its credit rating.

Du revealed that its capital expenditure reached AED369m in the first three months of this year.

In the first quarter, it also signed a $268.8m credit agreement with Nordea Bank Finland to buy equipment from Nokia Siemens Networks to expand its mobile phone network.

The company’s three major shareholders – all arms of the Dubai or federal UAE governments – agreed to take up their full entitlement of the new shares, some 78.75% of the new equity.

Emirates Investment Authority owns 39.5% of Du, sovereign wealth fund Mubadala Development Company owns 19.5% and Emirates Communications & Technology owns 19.5%.

Du expects the federal UAE authorities to enable it to provide fixed-line services over rival Etisalat’s network in the near future, said Osman Sultan, chief executive officer of Du.

“Outlook for our fixed-line business, which is arguably the most developed, integrated and technically advanced market in the Arab world, remains strong with the prospect of a nationwide infrastructure-sharing agreement,” Sultan said.

Du’s shares continued their slide that began on 19 April when the company first announced its plan to hold a rights issue. The shares lost 1.2% of their value on 12 May to end the session at AED2.54. Du shares stood at AED2.87 on 19 April, meaning that they have lost 11.5% since the rights issue announcement.