DUBAI Jan 28 (Reuters) - Telecom operator Batelco , which is battling a sustained profit slump, reported a 61 percent drop in fourth-quarter earnings on Tuesday and the Bahrain-based group said it had begun buying back a $650 million bond, taking advantage of a fall in its value.
Bahrain is one of the Gulf's most competitive telecom markets, with three mobile operators, including Kuwait's Zain and about 10 internet providers vying for business among its 1.3 million people.
Declining domestic income pushed Batelco to expand abroad which led to a deal with Cable & Wireless Communications in April to buy its Monaco and Islands Division for $570 million.
But some aspects of the deal ran into regulatory problems and as a result CWC returned the $100 million Batelco paid for a stake in a holding company that ultimately owned part of Monaco Telecom.
Batelco, formally called Bahrain Telecommunications Co, had been largely debt free, but in April sold a $650 million seven-year bond with an annual coupon of 4.25 percent to fund the CWC deal.
Batelco began buying back the bond in November, Tuesday's annual results showed, with the operator having repurchased $39.5 million of its debt as of Dec. 31.
"The bond buyback offers Batelco the opportunity to deploy excess liquidity in realising interest savings and managing debt levels," Batelco said.
Batelco, which has reported declining profits in 16 of the past 18 quarters, did not state whether the buyback was ongoing, although with cash and bank balances of $526.8 million the company has scope to do more.
"Batelco has cash in its hands and not much to do with it, but we don't have a clear view of what the company's strategy is," Shrouk Diab, assistant vice-president for research at NBK Capital in Dubai, said.
The group made a net profit of 6.9 million dinars ($18.30 million) in the three months to Dec. 31, down from 17.8 million dinars in the year-earlier period, Reuters calculated from past financial statements.
One analyst polled by Reuters forecast Batelco's quarterly profit would be 14.1 million dinars.
Batelco made a full-year profit of 43.6 million dinars, down from 60.3 million dinars in the corresponding period of 2012, it said.
The company blamed the profit slump on a number of one-off expenses, including those associated with the Islands Portfolio acquisition, but did not provide further details.
Batelco's chief executive Sheikh Mohamed bin Isa al-Khalifa quit in May and company veteran Peter Kaliaropoulos - who previously was CEO and held other senior positions - left in June. A committee of three board members now runs the company.
Batelco also owns Jordanian telecoms operator Umniah, 27 percent of Yemeni mobile operator Sabafon, minority stakes in internet providers in Kuwait and Saudi Arabia.
(Reporting by Matt Smith; Editing by Jane Merriman)