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.
|
Stock Price and Market Value Following Capital Reduction |
|
|
Stock closing price before capital cut (Hypothetical) |
SAR13 |
|
Capital cut value |
SAR 492 mln |
|
Number of shares canceled |
49.2 mln shares |
|
Number of shares outstanding and issued before capital cut |
189.2 mln shares |
|
Number of shares outstanding and issued after capital cut |
140 mln shares |
|
Market value of shares before capital cut |
SAR 2,459.6 mln |
|
Compensation to be paid to eligible shareholders for canceled shares (at nominal value) |
SAR 492 mln |
|
Stock price following the capital cut (Hypothetical) |
SAR14.05 |
|
Market value of shares after capital cut |
SAR 1,967.6 mln |
The company is expected to have a better financial position after the capital cut, and thus improving returns in general.
|
Capital Cut Impact |
||
|
Indicator |
Before capital cut |
After capital cut |
|
Total assets (SAR bln) |
2.33 |
1.84 |
|
Return on assets |
8.4 % |
10.7 % |
|
EPS |
0.96 |
1.28 |
|
Return on shareholders’ equity (ROE) |
8.7 % |
11.2 % |
|
Book value |
11.9 |
12.5 |
*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:
|
Impact of Capital Cut on an Eligible Shareholder with 1,000 Shares Portfolio |
|
|
Shares held before capital cut |
1,000 shares |
|
Closing price before capital cut (Hypothetical) |
SAR13 |
|
Market value of shares before capital cut (Hypothetical) |
SAR 13,000 |
|
Capital cut (%) |
26% |
|
Number of shares canceled |
260 shares |
|
Number of shares held after capital cut |
740 shares |
|
Stock price following the capital cut (Hypothetical) |
SAR14.05 |
|
Market value of shares after capital cut (Hypothetical) |
SAR 10,400 |
|
Compensation for canceled shares (at nominal value) |
SAR 2,600 |
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