City Cement explains details of 26% capital cut

City Cement Co.’s shareholders are set to vote on a 26% capital cut to SAR 1.4 billion from SAR 1.89 billion, during the extraordinary general meeting (EGM) scheduled for Aug. 25, as a result of capital surplus. 

In case of approval, creditors will have 60 days for objection. The company’s shares will be suspended for 2 consecutive trading sessions to implement the reduction process and adjust the share price. 

The company said in the shareholders’ circular that a total of 49.2 million shares will be cancelled (1 share for every 3.85 shares). In addition, City Cement will pay the value of the cancelled shares as per the EGM’s decision within 15 working days from the effective date. The cement producer will pay SAR 10 for every cancelled share. 

All fractional shares, if any, will be collected in one portfolio to be sold at market price at the time. The proceeds will be distributed to the eligible shareholders pro rata, within 30 days from the effective date of the reduction. 

Besides, compensation and proceeds will be granted to eligible shareholders who own shares registered at Tadawul on the second day following the eligibility date. 

City Cement indicated that the capital cut process aims at raising the efficiency of activities, including the efficiency of the capital structure and improving returns. 

The company’s board reviewed the capital structure and its adequacy level as well as the company's leverage and decided to reduce the current excess capital to ensure continued growth in line with the sector's. 

The company is expected to have a better financial position after the capital cut, and thus improving returns in general.

*Indicators are based on financial statements as of Dec. 31, 2019.

The following tables illustrates the impact of capital cut on an eligible shareholder with 1,000 shares portfolio: