Shares in telecoms operator du made their largest drop in seven weeks on Monday after the UAE firm said it had been instructed to pay a royalty of 15 percent on its 2011 net profit, plus a further 5 percent of revenue.
Using du’s earnings statement for the first nine months of 2011 – the most recently available – this works out to be a tax rate of about 39.5 percent, according to Reuters calculations.
This is less than the 50 percent the firm had provisioned for, but markedly higher than the previous year’s 15 percent royalty fee on annual net profit.
“This is marginally on the high side – expectations were for something between 25 and 35 percent, but it’s still less than what du had provisioned for and should be taken as a positive,” said Irfan Ellam, head of equity research at Emirates NBD.
Investors seemed concerned about the move, with du’s shares ending 2.3 percent lower on the bourse, their biggest fall since December 21.
Du launched services in 2007, while 2010 was the first year for which it paid a royalty.
Rival Etisalat, which operates in 17 countries, usually pays 50 percent of its net profit in royalties, including money earned abroad. The UAE accounted for about three-quarters of Etisalat’s revenue in the third quarter of 2011.
“Du only has domestic operations, while Etisalat has multiple foreign units,” added Ellam.
“One would expect the government would want a level playing field for du and Etisalat and so charge the same royalty fees to both companies for their home operations.
“Etisalat may pay something different for its international revenue.”
UAE royalty rates are among the highest regionally.
Operators such as Qatar Telecom, Oman Telecommunications, Saudi Telecom Co and Kuwait’s Zain pay between 5 and 22 percent tax, according to their earnings statements.
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