Saudi Capital Markets Authority Levies Fines and Penalties in Excess of SAR102 Million

On 12 October the Saudi Capital Markets Authority levied another set of record fines and penalties but not as high as its all time record of SAR278 million last January.  If you look closely, you'll see that many of those cited today were also involved in that fine.

The CMA levied SAR800,000 in fines and SAR99,434,098.10 in penalties (disgorgement of illegal gains) against seven individuals (two of whom were apparently not involved in illegal activity but received gains from that activity).  The fines and penalties concern trading in the shares of Al Baha Investment and Development Company between 23 July 2006 and 27 September 2006 as follows:

A.  Mr. Jarrallah Bin Muhammad Bin Nassir Al-Jarrallah

1. Return of SAR28,923,826.57 in illegal trading earnings on the trading.
2. A fine of SAR 300,000.
3. Prohibition from purchasing traded shares for seven years.
4. Prohibition from working in a securities firm for seven years.
5. Prohibition from acting as a broker, portfolio manager or investment advisor for seven years.

B.  Messrs. Sa'id Bin Muhammad Bin Nassir Al-Jarrallah, Fa'iz Bin Salih Bin Abdullah Bin Mahfouz, Nabil Bin Mu'id Bin Yahya AlQahtani

1. Sai'd to return illegal trading gains of SAR2,119,935.00
2. Nabil to return illegal trading gains of SAR24,896,213.23
3. Each of the three of them fined SAR100,000.
4. Prohibition from purchasing traded shares for five years.
5. Prohibition from working in a securities firm for five years.
6. Prohibition from acting as a broker, portfolio manager or investment advisor for five years.

C.  Mr. Abdulrahman Bin Abdulmuhsin Bin Sulayman AlMoajil

1. A fine of SAR200,000.
2. Prohibition from purchasing traded shares for five years.
3. Prohibition from working in a securities firm for five years.
4. Prohibition from acting as a broker, portfolio manager or investment advisor for seven years.

D.  Mr. Muhammad Bin Nasser Bin Jarallah Al-Jarallah

1. Return of illegal trading gains in his account of SAR38,293,835 caused by actions of Jarallah, Said and Fa'iz.   No fine as he apparently was not involved in the activities just a beneficiary.

E.  Mr. Nasser Bin Muhammad Bin Nasser Al-Jarallah

1. Return of illegal trading gains in his account of SAR5,200,288.30.  Like Mr. Muhammad immediately above, a fine was not levied against him, presumably because he was not involved in the illegal activities.

I'm guessing our friends above just didn't trade two stocks back in 2006 so we may be seeing more enforcement actions from the Saudi CMA.

Board of Saudi Zain Proposes Capital Reorganization for Shareholder Vote

Saudi Zain announced on the Tadawwul (Saudi Stock Exchange) today 21 August a plan for a capital reorganisation to be put to a vote at an extraordinary general meeting of shareholders for their ratification subject to the Company obtaining the prior approval of the Saudi Capital Markets Authority, the Ministry of Commerce and Industry and any other concerned body for the plan.

The reorg will take place in two steps:

1. In the first capital will be decreased.  While it's not stated, this is clearly to eliminated accumulated losses.
2. In the second a partial restoration of capital.

Here are the details. 

Capital Reduction 

1. Reduce paid in capital from SAR14,000,000,000 to SAR7,328,843,885.  This covers the accumulated losses of SAR6,671,561,150 as of 2Q10.  2Q10 financials:  Arabic version here and English version here.
2. There will be a reverse split with shareholders getting 1 share for approximately each 2.096 shares they currently own.  As a result, 667,156,115 shares will be canceled.
3. Not stated, but the balance represented by these shares SAR6,671,561,150 will be transferred to Accumulated Losses zeroing it out.

Capital Increase

1. Increase capital by SAR4,383,487,180 to to SAR11,711,926,030.
2. 438,348,718 new shares are to be issued.  There is no discussion of the offer price.  SZ's nominal (par) value is SAR10 per share.  If the shares are offered for a higher price (at a premium) then SZ will raise more than the SAR4.4 billion.  My guess is that there will be a strong incentive to issue the shares at par given the Company's financial condition and a desire to obtain as close to 100% take-up as possible.
3. In addition to the normal pro-rata allocation among shareholders, founding shareholders will be able to convert all or part of the debt they've extended the Company.  That amounts to SAR2,914,000,000.  Of that amount Zain Kuwait holds SAR1,859,397,000 (63.8%).  Zain Kuwait holds 25% of SZ's stock and 50% of the Founding Shareholders' portion.  The Saudi General Organisation for Retirement and the Public hold the remainder.
4. Kuwait Zain's response to the new share offer will give a clear indication of Zain's ability and willingness to continue as a shareholder.  There is perhaps an indication of their attitude in that the SAR2.2 billion 6 month supplier credit SZ obtained in June 2010 was guaranteed by one of the Founding Shareholders, presumably Zain Kuwait.

In a bit I'll post on Saudi Zain and the indications of a turnaround.

Saudi Arabia Capital Markets Authority Levies SAR7.3 Million Penalty Against Saudi Telecom Ex Director

The Saudi CMA announced today that a final judgment had been made in the case of Mr. Saleh Bin Mohammed Bin Saleh AlHajaaj.  He had been accused of insider trading in shares of Saudi Telecom on 19 and 20 December 2004.

The judgment consists of the following:

1. Payment to the CMA of the SAR7,249,365 representing the profits on his trading those two days from information he obtained as a member of the Board.
2. Payment of SAR100,000 in fines.
3. A three year ban from working for any company traded on the Saudi Stock Exchange (Tadawwul).

Saudi Capital Markets Authority - Changes to Corporate Governance New Definition of "Independent Director"

Well, it really is the season for corporate governance (or at least official announcements  about it).  The Saudi CMA has issued an amendment to the definition of "independent director" today.  So far only the Arabic text is posted.

A few quick comparisons:

1. Both codes set forth certain points which make a director not independent.  Bahrain's test is within the past one year.  CMA's the past two years.
2. The definition of "associate" is spelled out in detail in terms of personal relationships in the Saudi code.  The Bahrain Code just uses the term "associate" which does not appear to be defined in the Code itself.
3. The Bahraini Code has a relatively low threshold of BD31,000 (US$82,150).  Payments over this amount mean an individual is not independent.
4. The CMA definition includes owners of a controlling interest in auditors or advisors.  The Bahrain Code does not explicitly state this, though it does use the term "indirectly".

Saudi Arabia Capital Markets Authority Withdraws License of Ernst and Young Consulting Saudi Arabia For Cause

The Saudi CMA announced today that it had withdrawn the license of Ernst and Young Saudi Arabia Consulting.  E&YSAC had been given a license to conduct arranging and advising activities in the Kingdom.

The license was canceled due to  "مخالفتها لعدد من أحكام نظام السوق المالية ولوائحه التنفيذية."  That is, for violations of the Saudi Capital Markets Law and its implementing resolutions.

The CMA also canceled the license for Tarteeb Securities Company (also for advising and arranging activities) but this was at Tarteeb's request.

And finally the CMA fined Al-Jouf Company for Agricultural Development  SR50,000 for failing to report its Finance Director's resignation (3 July 2009) until 25 January 2010.  Here's the link to Al-Jouf's page at the Tadawul.

Saudi Capital Markets Authority - Three Fines Levied

The CMA announced it had levied three fines today:

1. SAR50,000 on AlRajhi Bank for delay in notifying the CMA of the resignation of  the GM of the Finance Group and GM of the Commercial Group.  Link to AlRajhi's English page at Tadawul.
2. SAR50,000 on Shams (Sun) Tourism Enterprise Company for failure to advise the CMA of the firing of the CEO by the Board.  The Board took its decision on 22 December 2009 but didn't notify the CMA until 27 December 2009.  Link to TEC's English page at Tadawul.
3. SAR50,000 on Sabb Takaful for failure to advise the CMA of several (unspecified) changes in senior management during the period 13 January 2008 through 13 October 2009 until 21 December 2009.  Link to Sabb's English language page at the Tadawul.

These are admittedly small amounts.  What I think is the story here is that the CMA is monitoring and penalizing companies for the sort of infractions that would have been overlooked in the past.

You can switch from the English language company pages to the definitive Arabic language ones by using the button at the top of the upper left page next to the "Home" button.  Also note that generally the announcement on fines are not translated into English at either the Tadawul site or over at the CMA's website. 

Saudi Capital Markets Authority - Corporate Governance Seminar in Partnership with Swedish Trade Council 9 February 2010

 

Copyright AlRiyadh Newspaper Saudi Arabia

Last December I had noted that the CMA had planned a corporate governance seminar for February in partnership with the Swedish Trade Council.

Here's the report and pictures from AlRiyadh Newspaper on the seminar.  Impressive list of speakers and good topics.  Summary here.  You can use this link to view additional information on the seminar.

Also here are the CMA's Corporate Governance Regulations (issued in 2006).  Definitive text here in Arabic.

Saudi Capital Market Authority SAR278 Million (US$74.2 Million) in Penalties and Fines re 2006 Trading in Tihama Shares

 

The Saudi CMA announced today (30 January 2010) that the Appeals Committee for Disputes in Securities had issued its final judgment upholding the levying of penalties and fines in the aggregate amount of SAR278,122,905 (US$74,166,108) against several individuals for trading in the shares of Tihama Advertising and Public Relations Company (Tadawul #4070) during the period 23 July 2006 through 19 August 2006.  The penalties are composed both fines and return of illegal gains on the trades.  Of the two amounts, as you might expect, the disgorged profits are more substantial - 99.8% of the total to be precise.

These are I believe record penalties imposed by the CMA.  

The Appeals Committee upheld the following earlier findings and penalties:

First, that Muhammad Bin Nasir Bin Jarallah Al Jarallah violated Paragraph "و" ('waw") of Article 30  of the Saudi Capital Market Authority's Listing and Trading Rules and the imposition of a fine of SAR100,000. (US$26,666.67).  (This Article requires that anyone with 10% or more of the shares in a company may not trade them without CMA approval.  The standard is not only direct ownership but also an interest in the shares.  Debt securities or debts capable to be transformed into voting shares are also subject to this Article.)

Second, the trading violations of each of Jarallah Bin Muhammad Bin Nasir Bin Jarallah Al Jarallah, Said Bin Muhammad bin Nasir Al Jarallah, Fa'iz Bin Salih Bin Abdullah Bin Mahfuz (Mahfuth) as agents for the portfolios of Muhammad Bin Nasir Bin Jarallah Al Jarallah and to return illegal gains in the amount of SAR90,142198.89 (US$24,037,919.17) to the CMA.

Third, confirmation of the violation of each of the three individuals mentioned in #2 (Jarallah, Said and Fai'z) with contravention of Article 49 of  the Capital Markets Law and Articles 2 and 3 of the Rules of Market Conduct.  (All of the regulations cited deal with market manipulation, false trades etc.  Article 49 also deals with insider trading).  The following are the consequential regulatory actions:

1. Jarallah Bin Muhammad Bin Nasir Bin Jarallah Al Jarallah to pay SAR142,844,770.38 (US$38,091,938.79)  in illegal gains to the CMA.  
2. Said Bin Muhammad bin Nasir Al Jarallah to pay SAR26,088,174.83 (US$6,956,846.62) of illegal gains to the CMA.
3. Each of Jarallah Bin Muhammad Bin Nasir Bin Jarallah Al Jarallah, Said Bin Muhammad bin Nasir Al Jarallah, Fa'iz Bin Salih Bin Abdullah Bin Mahfuz (Mahfuth) to pay a fine of SAR100,000.  A total of SAR300,000 (US$80,000).
4. Each of Jarallah Bin Muhammad Bin Nasir Bin Jarallah Al Jarallah, Said Bin Muhammad bin Nasir Al Jarallah, Fa'iz Bin Salih Bin Abdullah Bin Mahfuz (Mahfuth) prohibited from (a) trading in shares listed in the Saudi Stock Market (Tadawul) and (b) working in companies whose shares are traded in the Tadawul for three years.

Fourth,  that Abdul Rahman Bin Abdul Muhsin Al-Muajil assisted  Fa'iz Bin Salih Bin Abdullah Bin Mahfuz (Mahfuth) the violations.  He is subject to the same three year ban on trading and working as described immediately above.  As well as a SAR100,000 (US$26,666.67) fine.

Fifth, that Jarallah Bin Muhammad Bin Nasir Bin Jarallah Al Jarallah engaged in illegal activity with the portfolios of Nasir Bin Muhammad Bin Nasir Al Jarallah and that he pay SAR18,547,761 (US$4,946,069.60) to the CMA.

As mentioned above, not only is this I believe a record fine for the CMA but the scope of the profits made in roughly one month is truly remarkable.   If you go to the Tadawul website to Tihama's page and look at historical data (hopefully this link will work) you'll see a Burj Khalifah like spike in trading volume in the latter half of 2006 just around the time the individuals named above were allegedly engaged in their manipulation.  For those who don't read Arabic, the scale on the left hand side of the chart is millions of shares.  The scale on the right hand side the price per share in SAR.  SAR3.75 = US$1.00

Saudi Capital Markets Authority Levies Fine on CEO of Sadafco

The Saudi Capital Markets Authority announced it had fined the CEO of Sadafco SAR 50,000 for disclosure of "inside information" on the company's 1Q 2009 earnings.  If I'm not mistaken the CEO of Sadafco is a non Saudi.  No name was given in the announcement and so I'll refrain as well from providing a name.

Of late the CMA has been increasing the pace and rigor of its monitoring and enforcement actions.

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.

Saudi CMA Levies Fines

The Saudi CMA announced regulatory actions against five individuals.

You may have seen headlines about "fines" of US$1.1 million equivalent.  I believe that the what has happened is that press reports are including return of illegal profits as part of the total.  My reading (or more precisely translation) is that the fines were only  SAR 600,000 (US$160,000) and the remaining amount SAR 3,133,824 (US$835,686) represents return of illegal profits.  The Arabic text is not crystal clear (and is, as well, perhaps my own mind) but it seems unlikely that the CMA would levy odd amounts as fines.

First, Turky Bin Satam Bin 'Abika AlNasiri

1. Accused of irregular transaction in the shares of 17 companies (!) between 11 Feb 08 and 27 Sept 08
2. Return of profits of SAR 2,693,114
3. Fine of SAR 450,000
4. Banned from working in Saudi securities industry for one year
5. Banned from any trading in securities in Saudi for one year

Second, Mu'id Bin Ridad Bin Said AlZahrani and Ridad Bin Said Bin Ridad AlZahrani

1. Accused of irregular transactions in shares of National Company for Co-Operative Insurance
2. Fined SAR100.000
3. Both banned from working in Saudi securities industry or any trading for one year

Third, Abdulrahman Bin Salih Bin Ibrahim AlHadif

1. Accused of irregular transactions in shares of Fibco (1 Sept 2007 through 12 Sept 2007)  and Saudi Group  (4 Dec 2007 through 15 Dec 2007)
2. Return of profits of SAR 200,171
3. Fine of 50,000
4. Banned from both working in Saudi securities industry and any trading for one year

Fourth, Amal Bint Abdulrahman Al Man'i

1. Return of profits of SAR 240,539 - Mr. AlHadif was her agent
2. The CMA announcement of the judgment against her is included in Mr. AlHadif's announcement above

Recently the Saudi CMA has been "cracking down" on market manipulation and other violations of its rules to "enforce its rules and to protect market participants from illegal practices" (as each of the above announcements ends).  You'll recall that earlier this week it revoked the license of two securities firms for failure to abide by its regulations.   Here's a link to an article from Maktoob business with a bit of background on this issue.

Tip:  Foreign financial firms offering securities or securities related services  in the Kingdom would be well advised to read carefully the CMA's regulations on these activities.   The CMA regulations apply not only to securities issued by Saudi entities but also securities issued by foreign entities.  The regulations also govern both the requirements for offerings (definition of types of offerings, their required content and regulatory approvals) as well as authorized persons (types of licenses and registration/approval requirements).   Note the authorized person regulations outline the registration/approval requirements to undertake a variety of roles - principal, agent, underwriter, manager, custodian, advisor, etc.  The regulations also stipulate when a local office is mandatory.

The Arabic text is the governing text. NOT the English translation.  Even the one on the CMA website.   A couple of years ago the "official" English translation of the regulation on offerings had an error in the section on exempt offerings.  It still may.

The Saudi Stock Market (Tadawwal) dwarfs all other GCC markets in terms of value.  If I'm not mistaken, the Tadawwal has a larger market cap than all the other GCC bourses together.  The next largest market is that in Kuwait.

Saudi Capital Markets Authority Regulatory Actions

The Saudi CMA announced the following:

1. Talal Abu Ghazaleh Financial Consulting Company – Revocation of license to arrange and advise on capital markets transactions for failure to comply with relevant requirements. (Arabic text here)
   
2. Alpha Team – Revocation of license to arrange and advise on capital markets transactions for failure to comply with relevant requirements. (Arabic text here)
   
3. Addax Securities Saudi Arabia – At Addax's request agreed to the cancellation of its license to act as a principal, underwriter, agent, manager, arranger, advisor and custodian on capital market transactions. (Arabic text here)
   
4. Saudi Pioneers Securities Company – At SPSC's request agreed to the cancellation of its license to act as a principal, underwriter, agent, manager, arranger, advisor and custodian on capital market transactions. (Arabic text here).
   
5. According to AlRiyadh newspaper, the CMA also fined National Company for Industrialization SR 50,000 (US$13,333) for failure to promptly report the resignation of its SVP for Investments and Finance. He resigned on 1 November 2008 but formal notice was only given on 15 September 2009.
   

The first two appear revocations are for violations of regulations, while the second two were at the request of the company.

Saudi Capital Markets Authority Announces Corporate Governance Seminar For February

The Saudi CMA has announced it is organizing a corporate governance seminar in co-operation with the Swedish Chamber of Commerce.  The meeting will be held in Riyadh February 9.  Press details here.