DUBAI HSBC Holdings (HSBA.L) has ceased to be a bookrunner on Asiacell's planned share sale, raising new questions about the Iraqi telecom operator's ability float 25 percent of the company to mainly local investors.
The London-listed bank's exit follows that of Morgan Stanley Inc (MS.N) in September, and a statement from Asiacell on Thursday showed Baghdad-based broker Rabee Securities as "sole distributor and selling agent" for its initial public offering (IPO) of shares.
Asiacell, a unit of Qatar Telecommunications QTEL.QA (Qtel), declined to comment further, and HSBC also declined to comment.
Asiacell and its two rivals in the market, Zain Iraq (ZAIN.KW) and Korek, have to raise funds through IPOs as a condition of their $1.25 billion operating licenses.
All three companies missed an earlier deadline of August 2011. Asiacell is to be first to float on the Iraqi bourse.
"The absence of global and regional banks providing custody and brokerage services/access products make it difficult to pitch the IPO to international investors, so it will be mainly targeted at local investors," said Marc Hammoud, Deutsche Bank telecoms analyst.
Such a reliance on domestic demand could mean Asiacell fails to offload the full 25 percent of its shares for sale, with the Iraqi bourse seen to be ill-equipped to absorb Asiacell's listing.
Asiacell, which claims to have a 43 percent revenue market share and 9.9 million subscribers, said the company's founding shareholders would offer the shares for sale in the IPO, but has yet to reveal the pricing or whether it will be done on a pro rata basis.
Those will be crucial factors for Qtel, which in June agreed to pay $1.47 billion to up its stake in Asiacell to 54 percent from 30 percent, with the deal including a further increase to 60 percent pending Iraqi government and regulatory approval.
"The IPO might be an opportunity for local shareholders to cash out, but it doesn't make sense for Qtel to dilute its holding," said Deutsche's Hammoud.
Qtel's June deal valued Asiacell at about $5 billion.
"That's a good benchmark valuation for the IPO - Qtel wouldn't buy at that valuation and then sell shares in the IPO at a lower price," said Hammoud.
Asiacell expects to start trading on the Iraq Stock Exchange (ISX) on February 3, its statement said, confirming earlier comments from a company spokesman.
The telecom listings will be the first major IPO on the ISX since the U.S.-led invasion that toppled Saddam Hussein in 2003.
The bourse's market capitalization is about $4 billion and it trades around $3.3 million daily, while in 2011 Nomura estimated Zain Iraq's enterprise value (equity plus debt) at $4.9 billion.
"Local investors are flush with cash in Iraq," said Hammoud, though he questioned whether that situation is enough to support the Asiacell share sale.
"I wonder whether local investors will put their money in an equity issue that would value Asiacell as much as the entire market," he said. "It will be a big change for the local stock market, and big changes generally imply bigger risks ... or opportunities."
(Additional reporting by David French; Editing by Dinesh Nair and Hans-Juergen Peters)