The first stage will see the reduction in Arig's capital to $150 million from $360 million through the cancellation of existing shares and the issue of five new shares for each 12 old shares held. The nominal value of the new shares will be unchanged at $1 each.

'By reducing Arig's capital we are able to wipe out $210 million of the accumulated losses on the balance sheet,' says Udo Krueger, Arig's chief executive officer. 'The other $70 million of losses will be dealt with from legal and general reserves. After the capital reduction, Arig will have a loss-free balance sheet.'

Arig posted net losses of $98 million in 1999, $91 million in 2000 and $88 million last year.

The second phase in the financial restructuring will see a rights issue staged which is aimed at raising $100 million of fresh capital from existing shareholders.

The rights issue has nominally priced the new shares at par, or $1 each, but in reality is offering them at discount as subscribers to the issue will have access to one of three forms of deferred payment. The UAE Finance & Industry Ministry and the Central Bank of Libya - which each hold 16.5 per cent of Arig's stock - will offer a government guarantee that the full amount of their subscription will be paid in five years. Corporate subscribers to the rights issue will be able to provide a bank guarantee of payment in five years and individual shareholders will be able to pay their subscription into an escrow account and receive interest payments from the capital over the next five years.

Both the UAE and Libyan government shareholders have underwritten up to $30 million of the rights issue. They have committed $16.5 million to cover their own holdings and if there is a shortfall in the total sum raised they will increase their participation by up to another $13.5 million each. The third government shareholder, the Kuwaiti Finance Ministry, has expressed support for the plan and has approved the capital reduction, but is not expected to participate in the rights issue.

'This structure, with delayed payments, has not been used before but the shareholders have welcomed the proposal warmly,' says Krueger. 'We've used it because Arig does not need liquidity. But it does need confidence and the best way to get this is putting something on the balance sheet, which is what this structure allows.'

No date has been fixed for the opening of the rights offer - it is expected imminently - but 15 September has been named as the closing date.