Telcom Zain Saudi capital restructuring gets regulator nod

Telcom Zain Saudi capital restructuring gets regulator nod

Indebted telecoms operator Zain Saudi said on Sunday it would ask shareholders to approve a multibillion dollar capital restructuring after the market regulator endorsed the plan.

May 28, 2012 10:45 by Reuters

Indebted telecoms operator Zain Saudi said on Sunday it would ask shareholders to approve a multibillion dollar capital restructuring after the market regulator endorsed the plan.

If successful, the Saudi affiliate of Kuwait’s Zain will reduce its issued share capital to 4.8 billion Saudi riyals ($1.28 billion) from 14 billion before launching a 6 billion riyals rights issue, it said in an emailed statement.

Bourse rules say listed firms must cut their capital if losses exceed 75 percent of share capital, while Zain Saudi will use the proceeds from the rights issue to ease its debts.

The operator, burdened by the high price it paid for mobile licences, has yet to make a quarterly net profit nearly four years after launching services in 2008.

Its accumulated losses now stand at 10.1 billion riyals, according to its first-quarter results.

The firm also had liabilities of 22.9 billion riyals as of March 31 and analysts say these debts and losses have left it struggling to compete with its better-resourced rivals.

Zain Saudi’s share of the kingdom’s mobile subscribers fell four percentage points to 12 percent in 2011, according to parent Zain’s annual report, leaving it a distant third to Saudi Telecom Co and Etihad Etisalat.

Zain Saudi’s liabilities include 4.1 billion riyals borrowed from shareholders, some of which will be converted into new shares as part of the rights issue.

“The cash proceeds will mainly be used to reduce the company’s current liabilities and enhance the quality and performance of its existing network,” the statement said. “The capitalisation of a portion of the shareholder loans will further reduce the debt levels of the Company.”

In September, joint bidders Bahrain Telecommunications Co and Kingdom Holding scrapped a $950 million offer for Zain’s 25 percent stake in Zain Saudi.

Since then, Zain has reaffirmed its commitment to its affiliate and as an underwriter to the rights issue its shareholding may increase significantly if other shareholders do not take up their full share allocation, according to a note from Securities & Investment Co (SICO) in Bahrain.

Zain Saudi must first get permission from the Ministry of Commerce to hold the extraordinary shareholder meeting, it added.

($1 = 3.7502 Saudi riyals)

(Editing by David Cowell)