Atheeb, which has about 200,000 customers, has struggled to compete against former monopoly Saudi Telecom Co
Saudi Arabia's Etihad Etisalat (Mobily) is in talks to acquire 20 percent of Etihad Atheeb Telecommunications through a rights issue by the loss-making telecom operator, a bourse statement said on Wednesday.
The kingdom's No.2 mobile operator Mobily, via wholly-owned subsidiary Bayanat al-Oula, signed a memorandum of understanding in August with four of Atheeb's founding shareholders to buy a controlling interest in the firm.
Wednesday's statement indicates Bayanat is now seeking only a minority holding with management rights of fixed-line operator Atheeb, shares in which fell 9.8 percent to a seven-week low on Riyadh's bourse after the statement was released.
Terms are still under discussion, but the parties have proposed that Atheeb cut its capital by cancelling some shares. This would allow it to write off up to 100 percent of accumulated losses which totalled SR851.6 million ($227.1 million) at the end of 2013.
Atheeb would then launch a rights issue of undisclosed size in which Bayanat would acquire the subscription rights of the firm's founding shareholders so that it would end up with a 20 percent stake in Atheeb.
The rights issue would be open to all shareholders, who would face having their holdings diluted unless they pumped more money into the company.
Atheeb has 157.5 million shares with a nominal value of 10 riyals each.
The company previously cut its capital by 60 percent in 2011 to offset accumulated losses before an earlier rights issue.
Atheeb, which has about 200,000 customers according to its website, has struggled to compete against former monopoly Saudi Telecom Co and analysts say the main attraction for Mobily is to acquire Atheeb's landline licence.
Bayanat, an earlier Mobily buy, has a fixed data licence, so adding Atheeb would help Mobily offer bundled packages including mobile services, fixed broadband and landline calls. Such packages are seen as a means to attract and retain customers.
Among Atheeb's founding shareholders, Atheeb Trading Co owns 16.4 percent, Al Nahla Group 13.9 percent and Traco Group for Trading and Contracting 5.9 percent, according to Reuters data, while Saudi Internet Co owns an undisclosed stake.
Bahrain Telecommunications Co (Batelco) owns 15 percent of Atheeb but does not appear to be included in the Bayanat talks. Batelco did not respond immediately to requests for comment.