The Saudi Capital Markets Authority has approved an approximate 41% reduction in the paid of capital of Kingdom Holding Company subject to approval by shareholders at an Extraordinary General Meeting. Securing shareholder approval won't be a problem as Amir AlWaleed owns 95% of KHC.
The proposal is to reduce the number of shares from 6,300,000,000 to 3,705,882,300 and the capital from SAR 63,000,000,000 (US$16,8 billion) to SAR 37,058,823,000 (US$9.9 billion).
As per information at the Saudi Stock Exchange, KHC's shareholders' equity has decreased from SAR51.2 billion (US$13.7 billion) at 31 December 2008 to SAR22.3 billion (US$5.9 billion) at 30 September 2009.
A bit of hopefully informed speculation: The reduction is an accounting exercise designed to eliminate negative retained earnings. KHC will move roughly SAR 26 billion from the paid in capital account to the retained earnings account. The transaction has no economic effect. It is designed to have a legal effect.
Why would KHC want or need to do this?
While I don't know the corporate law in Saudi, I assume that there are restrictions on the payment of dividends by companies with negative retained earnings. As well, it could be a matter of optics. It's hard to sell shares in a company with negative retained earnings - the growth story is less believable.
While I don't know the corporate law in Saudi, I assume that there are restrictions on the payment of dividends by companies with negative retained earnings. As well, it could be a matter of optics. It's hard to sell shares in a company with negative retained earnings - the growth story is less believable.
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2 comments:
they did that because if they have a negative RE , KHC's shares cant be traded in the stock market
Thanks for posting.
I think I've missed something in your message, so take a look at my comments below and let me have a bit more "tafsir".
Didn't KHC have negative RE at the end of Fiscal 2008? So, how have their shares been trading from 1 January 2009 until today?
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