Global Telecom Holding View: Negative Tuesday, 3 July 2018 Valuation: EGP3.05 (36%) Egypt / Telecom Services / News Comment Stock chart and data VEON’s Acquisition of GTHE’s Pakistan & Volume (mn), Right GTHE EGX 30 Index Bangladesh Assets Is Negative for Minorities 50% 160.0 40% 140.0 Global Telecom Holding’s (GTHE) parent company VEON (NASDAQ: 30% 120.0 20% VEON) announced early this morning two major transactions, one 10% 100.0 involving the sale of its 50% stake in Wind Tre to CK Hutchison 0% 80.0 Holdings and another involving an offer to acquire GTHE’s assets in -10% 60.0 -20% 40.0 Pakistan (Jazz and its associated operations) and Bangladesh -30% -40% 20.0 (Banglalink). What really concerns us here is the second transaction -50% 0.0 which is for a gross consideration of USD2.55bn (in our opinion the two subsidiaries’ enterprise value, including debt), some 30% below our estimated enterprise value (EV) of USD3.67bn. In such a case, we Last Price (EGP) 4.80 think GTHE’s minority shareholders will once again end up with the 52 Week Range (EGP) 4.07 - 7.78 6M-ADVT (EGPmn) 68.91 short end of the stick! Market Cap (EGPmn) 22,661 No. of Shares O/S (mn) / Free float 4,721.1 / 43.2% • What’s the proposed deal? VEON, which owns 57.7% of GTHE, is back again, expressing its interest in GTHE—albeit indirectly this Financial summary time around. After seeing its mandatory tender offer of 100% of FY ended Dec. 2015 2016 2017 USDmn GTHE fail twice in the past five years (in 2013 and 2018), VEON (previously known as VimpelCom) has come up with another Revenues 2,894.4 2,955.5 3,014.7 YoY growth (13.3%) 2.1% 2.0% strategic move to fully own GTHE’s key assets. As a reminder, Gross profit 2,367.2 2,467.6 2,510.7 GTHE’s assets are 45.57% stake in Djezzy in Algeria, 100% stake in Margin % 81.8% 83.5% 83.3% Jazz in Pakistan, and 100% stake in Banglalink in Bangladesh. The EBITDA 1,269.2 1,192.5 1,241.8 second transaction of today’s deal involves the last two operations Margin % 43.9% 40.3% 41.2% Net income (140.9) 61.0 (144.0) which have been doing better than Djezzy, once GTHE’s crown Margin % (4.9%) 2.1% (4.8%) jewel. Meanwhile, the first transaction will bring in proceeds of P/E nm 60.5x nm EUR2.45bn, a fraction of which will be used by VEON to acquire the Dividend yield 0.0% 0.0% 0.0% GTHE’s assets. VEON will continue to hold its stake in Djezzy EV/EBITDA 2.7x 5.2x 3.3x Note: Multiples are based on year-end values, except 2017 which is through GTHE. Subject to approval of GTHE shareholders at an EGM based on last market price. and certain regulatory approvals, the second transaction is Source: Bloomberg, Decypha. expected to take place in Q4 2018. The consideration for the second transaction is expected to be satisfied in part by VEON “discharging and taking on debt, including bonds, of the GTH group in an amount of USD1.6bn”, with the remaining USD950mn expected to be paid in cash (USD400mn) and “deferred consideration” (USD550mn). • Is the deal “good” or “bad”? Before looking at the deal’s valuation, let’s try to be objective in assessing the deal itself: Who is it good for, and who is it bad for? For starters, VEON seems keen on commanding full ownership of GTHE’s assets as seen with its first attempt to fully acquire GTHE back in 2013 and later in 2017/2018. The first tender offer was not concluded after VEON (through Altimo) did not secure 100% ownership of GTHE, while the second tender offer was withdrawn by VEON for lack of paperwork. We think VEON’s interest in GTHE in general and its assets in specific is because of their good performance and—more importantly—cash flow generation, especially in view of VEON’s high leverage with a net debt of USD8.97bn, USD3.4bn of which is due by end of 2020. We note that VEON’s net debt is 2.5x EBITDA (already above VEON’s own target of 2x). Indeed, had VEON concluded the second tender offer of GTHE, its leverage would have increased further to 2.8x, according to Fitch which would have considered downgrading VEON for breaching its “downgrade” threshold level. So, today’s deal is “good” for VEON as it deleverages its balance sheet. Page 1 Global Telecom Holding Tuesday, 3 July 2018 • What about GTHE’s minorities? Answering the second part of the question as to who this deal is “bad” for, we think it will be bad for GTHE’s minority shareholders who we think will once again end up with the short end of the stick. Why? In a nutshell, other than missing two opportunities to sell their GTHE shares to VEON for USD0.70/share in 2013 then for the equivalent to c.USD0.45/share in 2018, GTHE’s minorities may end up with GTHE’s shares worth even less! More on this in the following paragraph. When GTHE’s minority shareholders meet in the company’s upcoming EGM (date yet to be announced) to either reject or approve the deal, they will collectively have only 42.3% of the votes. However, in view of the fact that VEON (GTHE’s majority shareholder) is the other party to the deal, there is a conflict of interest. Thus, we think the Financial Regulatory Authority (FRA) will most likely: (1) require an independent financial advisor (IFA) assessment of GTHE’s assets in Pakistan and Bangladesh and (2) require the exclusion of VEON’s shares when voting in the upcoming EGM. Only if point 2 above is required will GTHE’s minorities have a chance to reject the deal. • Valuation: So, should GTHE’s minorities vote for or against the deal? In short, we think they should vote against. This is simply because at an EV of USD2.55bn, GTHE’s assets in Pakistan and Bangladesh are valued at merely 2.8x TTM EBITDA and 1.2x TTM revenues. We note that to account for each operation’s cash balance in calculating its equity value, we assumed the same cash/revenues ratio of 12% on the consolidated level, excluding stand-alone figures. The proposed deal estimates the combined value of both Pakistan and Bangladesh operations at 30% below our estimated EV for both assets at USD3.67bn or 4.0x TTM EBITDA and 1.8x TTM revenues. We valued Djezzy at 3.6x TTM EBITDA (i.e. a 10% discount to Pakistan and Bangladesh), given Djezzy’s underperformance as of late. Hence, we value GTHE (pre-deal) at USD1.92bn or EGP7.28/share (+52% vs. last market price). This is net of a potential tax liability of EGP900mn or USD50mn. In case the deal goes through, GTHE will end up with 45.57% stake in Djezzy (which we value at USD1.47bn) worth USD668mn or EGP2.53/share and a net debt of USD187mn or EGP0.71/share, net of the potential USD50mn tax liability. Thus, VEON’s proposed deal would shave some USD1.12bn off GTHE’s valuation (notwithstanding other fees related to the deal). This a haircut of EGP4.23/share, rendering our post-deal estimated fair value for GTHE at USD805mn or only EGP3.05/share, 58% below the pre-deal fair value and 36% below last market price. In summary, we think this third round of take-over maneuver by VEON will be watched closely and may drag on for long. Trading of GTHE’s shares was suspended today and may well remain so for some time until the dust settles and minorities decide for themselves what they want to do. Page 2 Global Telecom Holding Tuesday, 3 July 2018 Global Telecom Holding (GTH) - Sum-of-the-parts valuation Before After % of total Equity/ % of total Equity/ Equity Attrib. Attrib. Equity Attrib. Attrib. Company Country EV Equity equity share EV Equity equity share stake % EV Equity stake % EV Equity value (EGP) value (EGP) Djezzy Algeria 45.57% 1,484 1,466 676 668 35% 2.53 45.57% 1,484 1,466 676 668 83% 2.53 Jazz Pakistan 100.00% 2,825 2,229 2,825 2,229 116% 8.45 Banglalink Bangladesh 100.00% 842 498 842 498 26% 1.89 Sub-total investments 3,396 177% 12.87 668 83% 2.53 GTH's separate net debt 100.00% (1,424) (1,424) (74%) (5.40) 100.00% (1,424) (1,424) (177%) (5.40) Reduction in GTH's debt 662 82% 2.51 Cash payment/deferred consideration 950 118% 3.60 Potential tax liability (50) (3%) (0.19) (50) (6%) (0.19) GTH group 1,921 100% 7.28 805 100% 3.05 No. of outstanding shares (mn) 4,721 4,721 Fair value 7.28 3.05 Recent price 4.80 4.80 % up/(dn) 52% (36%) Note: All figures are in USD million except for share data; GTHE's stock price as of 2 July 2018; exchange rate used is EGP17.89/USD. Source: SHUAA Securities Egypt estimates Page 3 Global Telecom Holding Tuesday, 3 July 2018 Global Telecom Holding (GTH) —Pre Deal Net debt / % of total Equity/ Equity EBITDA EV/ Attributable Attributable Company Country EV (cash) Q1 Equity equity share stake % (TTM) EBITDA EV Equity '18 value (EGP) Djezzy Algeria 45.57% 412 3.6x 1,484 18 1,466 676 668 35% 2.53 Jazz Pakistan 100.00% 706 4.0x 2,825 595 2,229 2,825 2,229 116% 8.45 Banglalink Bangladesh 100.00% 210 4.0x 842 343 498 842 498 26% 1.89 Sub-total investments 4,342 3,396 177% 12.87 GTH's separate net debt 100.00% 1,424 (1,424) 1,424 (1,424) (74%) (5.40) Potential tax liability 100.00% 50 (50) 50 (50) (3%) (0.19) GTH group 5,817 1,921 100% 7.28 No.