Zain Saudi Arabia rings debt alarm

The mobile phone firm is in talks with creditors as it has issued a warning following payment failures last year.

Zain Saudi Arabia, the kingdom's newest mobile phone operator, is in discussions with creditors after it failed to meet payments last year connected to a US$2.5 billion (Dh9.1bn) loan to help finance its growth plans in the country. The subsidiary of the Kuwait-based telecommunications giant Zain was pardoned by its lenders for missing the payments on condition that it agreed to draw up a financial plan for this year.

Yesterday, however, the firm warned that its ability to meet its financial obligations on time rested on how easily it could ensure adequate funds, and its success in moving some debt commitments for the four quarters this year. As a result, shares in the company fell yesterday as much as 1.47 per cent on the Riyadh bourse. "The company is in contact with creditors to supply them with this information based on the company's current financial forecasts to ensure that it honours these commitments for the quarterly periods [in 2010]," it said.

Concerns about the ability of Gulf companies to pay their debts have escalated in recent months since large-scale defaults at the Saudi Arabian companies Saad Group and Ahmad Hamad Al Gosaibi and Brothers. Zain Saudi Arabia, also called Zain KSA, did not give a figure for the amount of the missed commitments linked to the two-year facility, or name the banks involved. Since launching in the kingdom in August 2008 as its third mobile operator, Zain Saudi Arabia has made rapid inroads into the telecoms market. Its share of active mobile users exceeded 15 per cent, the firm said in October.

To help fund its growth, Zain Saudi Arabia in August secured a $2.5bn murabaha, or Sharia-compliant financing facility, with a group of local and international banks in what was one of the largest Islamic financing deals of the year. The loan was intended to help repay an existing murabaha used to fund the development of its infrastructure in the kingdom and the expansion of its subscriber base. The term of the facility was two years with options of extending for a further 12 months,

Al Rajhi Bank, Banque Saudi Fransi and Calyon were the initial mandated lead arrangers and bookrunners, while National Bank of Kuwait and Arab National Bank acted as senior mandated lead arrangers and bookrunners, it said. Saudi British Bank participated as the senior mandated lead arranger with Gulf Bank and Standard Bank acting as mandated lead arrangers. A murabaha deal involves an Islamic bank buying assets from a third party and selling it to its customer at cost plus profit. The facility is viewed as attractive as it enables the bank to lend money without charging interest, which is not allowed by Islam.

The operator said last week its fourth-quarter net loss narrowed by 29 per cent to 657 million riyals (Dh643.3m), compared with the same period a year earlier, due to a rise in subscriptions and the profitability of its data packages. The telecoms company said its full-year 2009 net loss widened by 36 per cent to 3.1bn riyals. @Email:[e-mail]