Shams Managing Director says capital hike to boost expansions, financial position

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Tourism Enterprise Co.'s (Shams) capital top-up will help it expand in other projects as well as boost fixed assets and financial position, through investment in various projects in the hospitality and entertainment sector across the Kingdom, Managing Director Abdullah Al Suwailem told Argaam.

He added that the post-increase capital will contribute to widening revenue and recording investment returns through investing capital in several under-study tourism projects. In addition, the firm invests the cash generated from operations and supports its permanent cash flows.

Here is the interview with Al Suwailem:

Q: The board decided to increase capital by 1,000% from SAR 52.3 million to SAR 578.3 million, through issuing 52.6 million rights. What is the goal of this move?

A: The capital hike aims to support the company’s business growth as a primary goal, as well as the upcoming tourism and entertainment projects. This is considered part of Shams' strategy that aligns with Vision 2030 in the field of tourism. The post-increase capital will boost its ability to raise revenue and achieve investment returns, through investing the capital in various under-study tourism projects. In addition, the firm invests the cash generated from operations and supports its permanent cash flows.

Shareholders' confidence reinforced the board’s eagerness to attend the extraordinary general meeting (EGM) and approve the capital hike, with a voting rate of 96%. The capital increase was mainly due to lack of strong assets. That is why it will help the firm expand further in other projects as well as boost its fixed assets and financial position, through investing in various hospitality and entertainment projects across the Kingdom.

Q: You highlighted that Shams will invest a large part of the net proceeds of its rights issue. What is your plan for these investments? What are the expected returns?

A: We indicated previously that the company will invest the net proceeds of its subscription in new tourism projects. The prospectus showed that the firm is studying the acquisition of four- and five-star hotels in the main Saudi regions. This was the reason and the main objective of the capital increase to support and enhance the value of assets. This will, accordingly, boost shareholders’ equity, revenue and profitability. The move will also reinforce the company’s diversified gains instead of focusing on a single source of income with a limited revenue. In addition, this will help it not to rely mainly on the only seasonal project that has not contributed to the realization of cash dividends to shareholders.

Further, the capital hike will allow Shams to expand in other projects, boost fixed assets and undertake new investments. We also believe that there are currently several opportunities in the tourism and entertainment sector than before, in light of Vision 2030 goals.

Minister of Tourism Ahmed Al Khateeb earlier stated that 12,000 hotel rooms will be opened in the Kingdom in 2022, which signals the highest rate globally. Saudi Arabia also secured a leading position among the G20 nations in terms of COVID-19 recovery, at a growth rate of 121%. It also recorded a total of 62 million visits in 2022, of which 29 million are from abroad and 32 million are from the Kingdom, according to data from the Saudi Ministry of Tourism.

The ministry's report also revealed that the number of overnight trips amounted to 60 million, with an estimated spending volume of SAR 80 billion ($21 billion), at a growth rate of 30%, as tourism is one of Vision 2030 pillars. Thus, the number of tourists will likely increase by 300% in 2030.

Vision 2030 aims to develop a sustainable entertainment sector that improves the quality of life for individuals and the population, as well as the lifestyle in the Saudi cities and governorates. It also seeks to make the sector an economic driver for the achievement of economic diversification and contribution to the growth in the non-oil gross domestic product (GDP). The number of attendees at the various events organized by the General Entertainment Authority (GEA) across the Kingdom exceeded 75 million.

We are currently studying contracting with international companies in the field of entertainment and tourism, in light of the great support from the Saudi government in this promising field. This is on the back of Crown Prince Mohammad bin Salman’s announcement last year for establishing a multi-alliance Sustainable Tourism Global Center.

Q: The company announced on Nov. 30 the termination of a memorandum of understanding (MoU) to acquire three hotels for failure to reach an agreement. What are the reasons?

A: On Feb. 27, Shams announced signing a non-binding MoU for the potential acquisition of three hotels in Riyadh, Jeddah and Dammam. On Nov. 30, the company announced the termination of the MoU for failure to reach an agreement on several factors, mainly failure to reach an agreement with the other party on some points. This was also attributed to variant market conditions and high financing costs (FC), which will negatively affect the cash flows of target hotels.

Accordingly, the company decided not to proceed with the acquisitions, especially amid the variant market conditions, increased FC, as well as the availability of another opportunity at a reasonable price serving the best interest of shareholders. Shams will continue to evaluate these opportunities to realize the ultimate returns for shareholders. We are also considering that the upcoming takeovers should not depend on borrowing in order to help the company avoid financial obligations and expenses. Moreover, it seeks to acquire projects that help distribute cash dividends and represent added value.

Q: What is Shams’ message for investors with respect to the capital increase?

A: First, we urge investors to cautiously and fully read the relevant prospectus before taking any investment decision on the new shares or rights. We also explain to investors the board of directors’ strategy and plan to grow the company’s balance sheet, which enhances investment opportunities in the firm. The subscription period will run through Dec. 7.

Q: Can you give more insight into the company’s new projects and expansion opportunities?

A: In a statement to Tadawul on Nov. 30, we said that we are studying several expansion opportunities, which will be announced later when any agreement or MoU is signed. Indeed, Shams, through the capital increase, aims to enter into new projects and investments, while acquiring solid assets that it can rely on in the coming period. We also believe that investment opportunities in the tourism and entertainment sector are currently better and stronger, compared to any other time, in line with the Saudi Vision 2030.  

Moreover, according to Al Khateeb, the Kingdom will open 12,000 hotel rooms by 2030, the world’s highest rate. In addition, Saudi Arabia ranked first among G20 states in terms of recovery from the COVID-19 pandemic, with 121% growth. The total number of visits to the Kingdom hit 62 million in 2022, including 29 million and 32 million foreign and domestic visitors, respectively.

Q: What is the company’s next target after the capital increase?

A: Shams seeks to be a leading player in the local sector. Based on this outlook, the company targets geographical diversification in projects across the Kingdom’s major cities. Shams currently develops a strategic plan to get ready for this stage and restructure its administrative and operating management, while attracting professional cadres in the entertainment and tourism sector. We have strong potentials that will allow us to lead the Saudi tourism sector, thanks to the sound planning and seizure of opportunities.