Kingdom Holding Company Makes Offer to Acquire Minority Shares in Kingdom Hotel

KHC has made an offer to acquire the minority shareholders' stake in Kingdom Hotels at US$5.00 per share, contingent on achieving a minimum 75% ownership.

Here's the press release on the offer and summary 2009 financial results.

Kingdom Holding Company Completes Capital Reorganization & Initial Trading Results

The Saudi Exchange (Tadawul) has announced that following the approval by KH's shareholders at an extraordinary general meeting on 10 February of the capital reorganization, the necessary steps to achieve the reduction have been taken effective 13 February.

Announcement of shareholder approval.  As per KH's website the vote at the EGM was 100% to  approve the change.

Announcement of completion of steps required to implement the capital reorganization.

On 13 February the shares opened at SAR 12.9 and closed at SAR12.10.  Today they opened at SAR12 and closed at SAR12.05.   Par value is SAR 10 per share so the capital reorganization and the asset infusion (CitiGroup shares) have so far achieved the goal of getting the stock to trade above par.

Kingdom Holding – Follow Up

So what happened after Kingdom Holding Company ("KHC") made the announcement on 5 January 2010 about its planed reduction in share capital and the donation of 180 million shares of Citigroup stock by Prince AlWaleed Bin Talal to KHC?

On 6 January, trading exploded (in a relative sense) from 1.4 million shares the day before to 28.6 million shares. KHC's share price rose from SAR 4.7 per share to close at SAR 5.15. This gain of SAR0.45 was roughly in line with the value of the Citi stock contributed by Prince AlWaleed (SAR 2.24 billion divided by 6.3 billion shares of stock outstanding).

On 9 January, trading was similarly elevated with 20.5 million shares changing hands. The closing price was SAR 5.00 per share.

Let's look a bit closer at trading on the 9th.  Details are at the Saudi Exchange website.

1. With 6,3 billion shares, 20.5 million shares represent about 0.3% of total shares.  Looking at free float (5%), the day's trading is still small at 6.5% of free float (315 million shares).
2. There were 3,987 transactions for an average "ticket" of 5,152 shares.  Retail.  Small investors.

Kingdom Holding Company Issues Press Release on Capital Reduction

Kingdom Holding issued a press release which  provided additional details on its proposed capital reduction as well as announcing that Amir AlWaleed was donating 180 million shares of his personal holdings of Citibank to KHC.

1. The 180 million Citibank shares represent an immediate profit for KHC of some SAR2.24 billion (roughly US$597 million).
2. The capital reorganization is designed to "enable KHC to distribute dividends to the Company’s shareholders".  Earlier post here, he says while patting himself on the back vigorously.
   

Both moves are portrayed as evidence of commitment to KHC and as steps that will enhance its borrowing capacity.

On that latter point ---

When AA labored in the DCM field, we focused on the total of shareholder funds and  the quality of the amounts therein.  We weren't really all that fussed about the balances in the individual equity accounts unless these affected our legal rights as lenders.

Reducing paid in capital and offsetting accumulated losses in retained earnings are just bookkeeping entries - moving money from account "A" to account "B" within equity.  The total amount of equity stays the same.   While it helps shareholders get dividends,  I can't see that it does anything  to strengthen the lenders' position. 

Perhaps, this move is for local banks?  Of for those "bankers" who believe in implicit guarantees?

Saudi CMA Approves 41% Reduction in Kingdom Holding Capital

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.