UPDATE 2-Oman kicks off telecom stake sale, invites investors

(Adds details, analyst, share price reaction)

By Daliah Merzaban

DUBAI, July 7 (Reuters) - Oman kicked off its planned sale of 25 percent in Oman Telecommunications Co OTL.OM on Monday, inviting investors in a deal it hopes will boost the state-controlled firm's competitiveness as it expands abroad.

The government, which owns 70 percent of Omantel, wants to "strengthen Omantel's market position" through a stake sale this year, and could give an investor voting rights in the firm, the Ministry of Finance said in a statement on the bourse website.

Governments across the world's biggest oil-exporting region are opening up their telecom sectors to competition as their economies surge on a seven-fold rise in oil prices since 2002.

Shares of Omantel -- the Arab region's best-performing telecom stock this year -- gained more than 2 percent on the plan, which will dilute the state's holding to less than half. The stake would be worth $1.15 billion at current market prices.

"Scale has become one of the main requirements for regional telecom operators to compete successfully," said Jithesh Gopi, head of research at Bahrain-based SICO investment bank.

"It becomes increasingly difficult for smaller operators like Omantel to compete in these markets. When you have a strong strategic partner who has deep pockets and scale, upgrading technology and investing in the local market becomes easier."

Oman will accept expressions of interest until July 18 from telecom firms that operate in multiple countries, have at least five million subscribers and agree to hold the Omantel stake for at least five years, the Ministry of Finance said.

"It is difficult to play solo in this era of globalisation," said Amer Awadh al-Rawas, managing director of Omantel's mobile phone division, Oman Mobile.

"A strategic partner will increase our business ... penetration level is low, so there is lots of scope," he said.

Citigroup Global Markets Ltd. and National Bank of Oman NBO.OM are advising the government on the sale, which should be concluded by the end of 2008, the ministry said.

COMPETITION

In Oman, home to 2.5 million people, mobile phone penetration of 96 percent last year was the lowest in the Gulf, according to ministry estimates, where the quota often exceeds 100 percent because people frequently own more than one phone.

The region's two largest mobile phone operators by market value, Emirates Telecommunications Corp ETEL.AD (Etisalat) and Saudi Telecom Co 7010.SE, have said they would be interested in the Omantel stake.

The winning partner should "substantially contribute to the management and growth of Omantel both organically and via international expansion", the ministry said.

Omantel has been less aggressive than other regional operators in its expansion plans. In its first foray this year, Omantel agreed to pay $193 million for a controlling stake in Pakistan's Worldcall Telecom WTCL.KA.

Saudi Arabia sold its third mobile phone licence last year for $6.1 billion, followed by Kuwait, which offered a stake in a third mobile phone firm for $907 million in November. Qatar also ended a telecom monopoly last year.

Omantel's average revenue per user is $40 in the mobile phone market, in which its holds 60 percent market share, the ministry said.

Oman last year cut the royalties Omantel and its competitor, Qatar Telecommunications Co QTEL.QA affiliate Nawras, have to pay on mobile phone services to 7 percent from 12 percent. The move helped Omantel boost first-quarter profit by 60 percent.

Shares of Omantel have surged more than 36 percent this year, outperforming the Muscat index .MSI, which is up almost 30 percent since January. (Reporting by Daliah Merzaban; editing by Sue Thomas)