UK says UAE group’s stake in Vodafone is national security risk
Government expresses concerns over an Emirati deal for second time in a day
The UK has said that a stake in Vodafone held by a United Arab Emirates group is a national security risk and ordered the companies to take steps to mitigate it, the second time in a day that the government has expressed concerns over Emirati investments in key UK assets.
In a statement published late on Wednesday, the cabinet office said the stake held by the state-controlled Emirates Telecommunications, which is also known as e&, posed risks given Vodafone’s importance to the UK’s telecommunications sector and its role as a supplier to government departments.
The statement came hours after the culture secretary, Lucy Frazer, ordered further regulatory scrutiny on public interest grounds of RedBird IMI’s £600mn bid for the Telegraph newspaper group. The proposed takeover of the right-leaning newspaper by an Abu Dhabi-backed investment group has attracted considerable opposition from members of the Conservative government.
The scrutiny comes as the British government is seeking to expand a “sovereign investment partnership” with the UAE, after the Gulf state exceeded the £10bn investment it pledged three years ago, according to two people familiar with the matter. In 2021, the UAE pledged to invest the sum in the UK, targeting sectors such as clean energy, technology and infrastructure.
e& began building a stake in Vodafone in 2022 and last year increased it to almost 15 per cent. It is Vodafone’s largest single shareholder. In May, the companies announced a strategic partnership that handed e& a seat on the FTSE 100 company’s board.
The cabinet office said this strategic relationship would “enable it materially to influence the policy of Vodafone”.
The government had not previously disclosed that it was reviewing the relationship. Under the National Security and Investment Act, which came into force in 2022, the government is able to review — and ultimately block — foreign takeovers of companies in industries that have ties to national security.
While stopping short of ordering a divestment, the cabinet office said Vodafone and e& had to meet certain requirements relating to any alteration or termination of their strategic relationship.
The companies would also have to establish a “national security committee” to oversee any work by Vodafone that “has an impact on or is in respect of the national security of the United Kingdom”.
In a statement, Vodafone said it was “pleased to have received clearance in our home market for our strategic relationship agreement with e&, and for e& to take a seat on our board”.
e& did not immediately respond to requests for comment. The cabinet office declined to comment beyond the statement.
To the UAE, the UK order “smells very bad and it is not something you would expect from a friendly country that values its historical relationship”, said Abdelkhaleq Abdalla, an Emirati analyst. “It’s not really very specific, saying that it carries a national security risk — on what grounds?”
“The UAE is a business-oriented country and it values the relationship with the UK, so it’s not going to do anything to weaken that,” he added.
The government decision comes as the six-member Gulf Cooperation Council, which includes the UAE, has been negotiating a free trade agreement with the UK, with a sixth round of negotiations expected to be held in the first quarter of this year.
Karen Egan, a senior telecoms analyst at Enders Analysis, said it was “inevitable that [the UK government] would be really sensitive about telecoms, which is more critical than ever to our lives in general and particularly in today’s geopolitical environment”.
She said risks included cyber attacks, interception and networks being shut down.
Egan added that the imposed requirements could be a template for the proposed domestic merger of Vodafone and Three UK, owned by CK Hutchison, if there are any national security concerns related to the Hong Kong-based company.
The government has previously used its powers to probe the national security implications of a shareholder in a UK-based telecoms group.
In 2022 it decided not to use the powers to block or unwind billionaire Patrick Drahi’s investment vehicle Altice’s 18 per cent holding in BT, according to the company.
Altice UK then increased its stake last year to 24.5 per cent.