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Fee Deferment to Spur Zain KSA
Published Jun 12, 2013
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The deferment of Zain KSA's close to SR800 million per year license fees (SR5.6 billion overall) will give more comfort to Zain 's lenders when dealing with the company's proposed debt restructuring, Al Rajhi Capital said in its comment Sunday.
" Zain is now in a better position to negotiate and conclude its proposed and much delayed long-term facility restructuring," it said.
After the debt deferment announcement, the company also rescheduled its SR2.25 billion facility with a maturity extension of three years. This facility is now backed by the guarantee from the Zain Kuwait group. The debt is subordinate to the SR9 billion debt and the owners providing guarantee to it is expected to make it easier for the company while refinancing the SR9 billion debt.
Based on Al Rajhi's initial calculations, the deferment will have a positive impact on Zain 's operating cash flow, while impact on net profit will depend on the company's debt refinancing success, debt level, and interest rates. Since this is government assistance, the interest costs will be on the lower side and have assumed an annual interest cost of around 2 percent, Al Rajhi added.
Freeing the cash flow could also help Zain to stimulate its capex and network building plans.
Al Rajhi further said the deferment is a big boost to declining investor confidence. The continuous extension on the repayment of its SR9 billion debt, recapitalization plan, and the frequent change in top management had badly affected investor confidence in the company. As a result, Zain KSA stock fell drastically (around 30 percent) in 2012 and traded near its all-time lows.
There was an initial euphoria among investors on the company's capital restructuring plan, leading to a sharp rise in Zain 's stock price in the early part of 2012. However, the disappointing progress on debt reduction and a lukewarm response on its rights issue resulted in a sharp fall in Zain 's stock, Al Rajhi noted.
However, following the MoF announcement, there has been a renewed interest in the company's prospects, which, Al Rajhi hopes the company will utilize to come back on track. The stock price has already rallied 12 percent after the fee deferment announcement.
Posted by
VMD - [Virtual Marketing Department]
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