Zain Saudi stocks hit hard after Mobily’s debt claims, says CEO

Zain Saudi Arabia’s shares have been hit hard after Mobily decided to seek arbitration against the company, said Hassan Kabbani, chief executive.

Mobily, the kingdom's second-biggest telecom operator said on Tuesday that it’s taking Zain Saudi to arbitration for about SAR 2.2 billion ($586.28 million) that it's owed by the company in relation to a 2008 services agreement between the two operators.

“The market needs regulations that can prevent such disputes from causing so much damage to businesses, especially without documentation for such claims,” he said.

Zain’s board of directors recently recommended a capital reduction for the company in order to improve its financial standing, according to Kabbani. 

In an interview with CNBC Arabia, he stressed that the decision had "nothing to do" with Mobily’s claims. 

He pointed out that Zain will maintain its relationship with Mobily.

Zain Saudi currently owes the company SAR 13 million, according to its unaudited financial records.

Kabbani said the telecom industry in Saudi is booming and that Zain currently has nine million customers.

“The company faced two major challenges when first launching in Saudi Arabia, first it was the price of its license which cost SAR 23 billion and the second had to do with regulatory procedures,” he said. 

Zain Saudi-- which has been facing financial difficulties-- is currently working to avoid accumulating losses worth 50 percent or more of its capital, he said. The company is forced to make tough decisions as it improves its financial results.

“There is room for a third major player in the telecom industry," he said. "Zain has a promising future and the company will eventually reach its break-even point.”

Last month, the company’s board recommended reducing its capital from SAR 10.8 billion to 5.837 billion, a 45.96 percent reduction, according to Argaam. The company’s accumulated losses as of Sept. 30 were at 45.96 percent of its capital. 

Companies in the kingdom that lose 50 percent or more of their capital are forced into a trading halt, according to market regulations.