Zain Saudi Arabia has announced plans to increase its capital by SR4.38bn ($1.2bn) through a rights issue as part of the company’s plans to recapitalise the company.

Under the terms of the plan, the telecoms company will cancel around half its shares to cover losses carried on the company balance sheet, before launching the rights issue.

The rights issue is much larger than originally anticipated. MEED reported in March that the company was in talks with Calyon Saudi Fransi, the investment banking arm of Banque Saudi Fransi (BSF) and France’s Credit Agricole, and Al-Rajhi about a recapitalisation plan of around $500m.

In July 2009, Zain raised a $2.5bn syndicated loan from local banks to finance the development of its network in the kingdom. Both Al-Rajhi and BSF played a large role in that deal. However, in January, the company said it was in breach of some of the covenants, or conditions, of the loan because the business was not growing as fast as it had told lenders it would. In 2009, the company reported a SR3.1bn loss, expanding from a loss of SR2.28bn in 2008.

Bankers involved in the loan say the covenants were renegotiated earlier in the year.