Saudi investors face hefty losses after king shuts telecoms start-up; SITC’s failure highlights the dominance of speculative retail traders in the Saudi market, who chase rising prices with little regard for fundamental valuations

Saudi investors sent reeling after king shuts telecoms start-up

3:24pm EDT

By Matt Smith

DUBAI (Reuters) – Saudi retail investors face hefty losses after a royal decree ordered the liquidation of Saudi Integrated Telecom Co (SITC), which floated its shares in an initial public offer (IPO) in 2011 but never started operations.

SITC’s failure highlights the dominance of speculative retail traders in the Saudi market, who chase rising prices with little regard for fundamental valuations.

“Investors are shocked,” said Mohammad Omran, a member of the Saudi Economic Association (SEA). “The CMA made a big mistake by allowing the IPO to go ahead.”About 20 investors protested outside the offices of the Capital Market Authority (CMA) on Tuesday, local newspaper Twasul said, and although such protests are rare in the kingdom, where demonstrations are banned, the newspaper carried photographs of demonstrators holding up placards, one of which read, “Save the shareholders of Integrated and their families”.

The CMA bourse regulator halted trading in SITC’s shares on February 5 when the stock was trading at 24.35 riyals, more than double the initial public offer price of 10 riyals but half the all-time closing high of 50.50 riyals hit in March 2012, which valued the company at 5.05 billion Saudi riyals ($1.35 billion).

However, some shareholders at least could be in line to get a pay-out from the liquidation committee, which comprises the CMA, the Ministry of Commerce and the telecoms regulator, as the company had 100 million shares in issue and reported net assets of 910 million riyals at the end of 2012.

“In the case of liquidation, this amount will be distributed to the shareholders after reimbursement of any outstanding debts such as wages, rent, bills, etcetera,” said Ibrahim Alnaseri, SITC’s legal adviser and spokesman.

He did not specify the likely value of these debts, but said they were likely to be minor due to the company’s “small number of employees and limited activities”.

At the end of last year the company was still sitting on cash and equivalents of 816 million riyals, according to Thomson Reuters data.

King Abdullah’s decree said that the company should be liquidated within six months and the priority in the repaying of its obligations is to its non-founder subscribers and shareholders.

The monarch ordered the company’s liquidation last month after promising in 2012 to ensure trading rules applied to everyone, including the ruling al-Saud family. The company’s chairman is Prince Saud bin Khaled bin Abdullah Al Saud.

Prince Saud owned a 43 percent stake in SITC as recently as last September, according to Thomson Reuters data. This was held through various holding companies and these and other founding shareholders made a winning bid in 2007 of 1 billion riyals for a license to provide fixed-line services.

The founding shareholders were to pay 650 million riyals of this fee, with the other 350 million riyals to be raised through an initial public share offer and a 5 percent stake sale to the state pension fund.

SITC concluded its IPO and listed in June 2011, despite still not receiving its telecoms operating license and recorded no revenue that year or in 2012, Thomson Reuters data shows.

The founding shareholders did not pay up for their part of the license fee until January this year, according to a stockmarket filing, but the company told Reuters it had provided the regulator in the interim with a bank guarantee in lieu of immediate payment of the fee.

However, the company’s shares were suspended after the founding shareholders withdrew 260 million riyals of the IPO proceeds, with trading resuming after this money was returned.

In the IPO prospectus the founding shareholders committed to provide an additional 2.7 billion riyals to fund the company’s operations. This was to be paid in four installments after the company had received its telecom license.

But the Communications and Information Technology Commission (CITC) has refused to grant SITC its license, saying it had failed to meet requirements, it said in an emailed statement to Reuters. It did not explain what those requirements were.

Alnaseri said the firm would fight on. “The company believes it should receive the license, and it will take all possible legal measures towards (achieving) this,” he said.

Asked how and when the company would appeal against the liquidation order, Alnaseri said: “That will depend on the rules of liquidation, which are supposed to be set by the liquidation committee.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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