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Thu 5 Mar 2015 02:02 PM

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Mobily shares surge on hopes for indirect Saudi gov't support

Troubled Saudi telecom operator gets stock boost after last week's shock restatement of 2014 earnings

Mobily shares surge on hopes for indirect Saudi gov't support

Shares in Saudi Arabian telecommunications firm Mobily surged in early trade on Thursday as some investors hoped the government would indirectly support the troubled company if necessary, after last week's shock restatement of its 2014 earnings.

The stock, which had been suspended for a week until Thursday, fell as much as 4.9 percent in the opening minutes of trade but then rebounded and jumped 8.5 percent to 38.20 riyals, helping Saudi Arabia's main stock index climb 0.2 percent. It remained far below an intra-day peak of 98.50 riyals hit in May last year.

Investors buying the stock are encouraged by the appointment last week of Suliman bin Abdulrahman al-Gwaizas Mobily's chairman, said Abdullah Alawi, assistant general manager and head of research at Aljazira Capital in Riyadh.

Gwaiz is also governor of a huge state-owned fund, the General Organization for Social Insurance. There has been no concrete indication that the government will aid Mobily, and it does not have a track record of bailing out private firms, but some Saudi investors nevertheless hope that a public figure of Gwaiz's stature will be able to ensure the company's recovery - for example, by facilitating talks with creditor banks.

"Overall, the investor sentiment on Mobily now is that it's the second-largest operator in the kingdom, has a solid base of clients and a viable business model," Alawi said. "Most investors I have spoken to are not expecting a mass exodus from Mobily."

But he added, "Those who buy the stock today are betting on so many things to go right." He added that Aljazira Capital maintained a "sell" recommendation on Mobily with a target price of 32.00 riyals.

Saudi Arabia's Capital Market Authority suspended trading in Mobily before the market opened on Wednesday last week, after the company announced it had suffered a $243 million loss in 2014 - instead of an earlier announced profit - and expected to breach covenants on long-term loans.

On Wednesday this week, Mobily issued another statement giving details of the covenant breach and saying it believed it could still meet all its debts. The regulator then agreed to resume trading in the stock.

Alawi said the breach of loan covenants might force banks that financed Mobily to take loan loss provisions in the first quarter, which could affect their profits. Most large Saudi banks have exposure to the company. Mobily said it had a total of 2.4 billion riyals of financing facilities coming due in 2015 and 2.1 billion riyals in 2016.

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