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 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 Zain 31 December 2009 Earnings Announcement

 

Two announcements from Saudi Zain on 2009 results at the Tadawul (Saudi Stock Exchange) today.  One the commentary.  The second a summary of results.

The commentary on results begins by noting achievements:

1. 6 million subscribers or 18% market share.  As I posted earlier a very key metric especially in a market with over 100% penetration is spend per subscriber.  Apparently, there are a lot of fairly inactive "chips" in the Kingdom being claimed as subscribers by all the major telecom firms.
2. Company is offering voice, text and broadband services.
3. Extension of coverage to 83% of the inhabited areas of the Kingdom.
4. An gross operating profit of SAR 877 million.  Note this is before other expenses.
5. Then a quote of the auditors' "emphasis of matter" - which by the way is roughly 64% of the entire commentary so SZ is not putting too much sugar on the news.

Financial results:

1. Net loss of SAR3.099 billion versus net loss of SAR2,278 billion.  (Recall from my earlier post that amortization of SZ's license fee is a major expense burden).
2. Loss per share SAR2.21 versus SAR1.63 in 2008.
3. Gross operating profit of SAR877 million versus SAR16 million in 2008.
4. Loss from Operations of SAR2.467 billion versus SAR1.7 billion in 2008.
5. Greater loss due to fact that in 2008 (18 month period) the company was not fully in operations so 2009's cost of operations, marketing, and financing were higher.  While it is noted that for four months out of the extended 2008 reporting period the company had no revenues, clearly operating expenses were the cause for the increase in 2009's loss.

You'll notice that the numbers above differ from those in my earlier post.  That post was based on preliminary numbers.  The final audited numbers are here.

Other posts on SZ can be accessed using the label "Saudi Zain".

Saudi Zain - Capital Increase RIghts Offering Also Being Considered

Saudi Zain issued an announcement on the Tadawul today advising that it is considering a Rights Offering as a way of increasing capital.  It seems from this that AlRajhi Bank, Calyon, and Samba have also been engaged for this role as well.

No mention is made of conversion of debt to equity.  That being said, the first step in a debt conversion would be a rights offering to allow shareholders the right as they have a legally mandated right to any new shares.  I'm guessing that the shareholders will be asked to approve the rights offering and a mechanism to accommodate the debt conversion.

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.

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

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.