Zain Saudi Arabia prepares for $2.7bn debt refinancing

02 February 2012

Banks appointed for debt refinancing and rights issue planned for later this year

Zain Saudi Arabia (Zain KSA) has appointed the local Al-Rajhi Bank, Banque Saudi Fransi (BSF), and France’s Credit Agricole, to refinance a $2.7bn loan that is due on 27 July.

The appointment is part of the telecoms firm’s plans to turnaround the loss-making business after talks about a potential acquisition fell through, largely because of opposition from the company’s bankers about the terms on offer.

Under the plans, Zain KSA, which is part of Kuwait’s Zain Group, is also expected to do a $1.6bn rights issue, which will be arranged by the investment banking arms of the two local banks, who will work on the refinancing.

The rights issue will be split between about $900m of new money and $900m from the conversion of shareholder loans into equity. “The rights issue does not have to happen before the debt refinancing, but it would be good if it does as they would get better terms from the banks,” says one source in Riyadh.

Banks agreed to the debt extension, which was originally due in February, late last year. The existing debt is provided by a group of international and local banks, including Al-Rajhi, BSF, Arab National Bank and Sabb. The company hopes that the amount it has to refinance will be smaller than the current facility and that a new deal could be around $2.4bn.

Zain KSA made a loss of SR1.9bn in 2011, less than the SR2.4bn loss in 2010, but Farouk Miah, analyst at the local NCB Capital, said “although fourth-quarter results showed an improvement year-on-year at the net income level, Zain remains heavily loss making.”

The company’s poor financial position, liabilities exceeded assets at the end of 2011, coupled with the covenants on the existing debt, led a consortium of the local Kingdom Holding and Bahrain’s Batelco to walk away from plans to buy the company in October 2011.

The company has since appointed a new management team and plans to develop stronger ties with Zain Group in order to turnaround its performance.

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