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Tue 5 Jan 2010 11:29 PM

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Kingdom Holding to cut capital after Citi stock gift

Capital decrease will go towards covering firm's accumulated losses and lead to profitability - KH.

Struggling Saudi based Kingdom Holding Co will cut its capital by 40 percent, the Saudi bourse regulator said, after the firm announced its main shareholder had given it Citigroup shares worth $597.3 million.

The firm, whose stock has lost more than half its value since listing on the Saudi bourse in 2007, had losses of 65 percent of its capital at the end of the third quarter, and losses of more than 75 percent would require a suspension in its stock.

The Capital Market Authority said on Tuesday it had approved a request by the company to reduce its capital to $9.89 billion from $16.79 billion pending shareholders' approval.

Hesham Abu Jamea, head of asset management at Bakheet Investment Group, said the amount of the capital decrease would go towards covering accumulated losses.

Earlier in the day, Kingdom said it had received 180 million free Citigroup shares from its 95 percent shareholder, Saudi billionaire Prince Alwaleed Alaweed bin Talal.

In an emailed statement, the company said: "Prince Alwaleed's initiative and the (capital reduction) decision ... will lead the company to profitability and enable it to distribute dividends ... once the board of directors approves it."

It added: "(Kingdom) ... received a free of charge donation from Prince Alwaleed in the form of 180 million shares in Citigroup of which the value stands at 2.24 billion riyals ($597.3 million) as of end 2009."

Kingdom Holding gets most of its revenue from dividends from its shareholdings, and from its hotel business.

Turmoil in the global market has slashed the value of the firm's assets, and shareholders that bought into the company's $860 million initial public offering (IPO) have received no dividends.

Several analysts, who did not want to be identified, criticised the company for not announcing previously that it had a capital reduction plan.

Under Saudi bourse rules, a company must announce to the market when it has made a request to the bourse watchdog for approval of plans to make changes to its capital.

The Saudi bourse is struggling to shed an opaque image and has been tainted by allegations of insider trading.

Other analysts saw in the plan a means for the company to boost its book value ratio and reduce the percentage of losses.

Bakheet's Abu Jamea said: "They (Kingdom) had to deal with the sharp decline in the stock's book value to avoid deepening the crisis."

Alwaleed's spokesperson declined immediate comment and said in a written response to emails from Reuters that a news conference would be held next week.

Analysts said the timing of the capital reduction plan, a few days before the announcement of fourth quarter earnings, could indicate that the firm expects results to be worse than its $8.26 billion loss in the same period in 2008.

Kingdom's Citigroup stake accounted for more than 40 percent of its assets when it went public.

It posted a near 77 percent drop in nine month net profit due mainly to lower dividend income and the impact of the global slowdown on its hotel business. (Reuters)

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