Saudi’s Zain restructures $2.3bn loan

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After more than a year and a half, and a total of 11 times of deferring payment to creditors, Zain KSA has finally reached an agreement with the lending banks to restructure the outstanding amount of an Islamic debt facility it initially took out in 2009 for 2.4 billion dollars.

Zain KSA had repaid a small portion of the loan using internal cash reserves, leaving 2.3 billion dollars to be restructured over five years. Whereby, the five-year facility will be restructured on an amortizing basis, with 25% of the loan due in years four and five of the loan and the remainder due on maturity on July 31, 2018. Moreover, the new facility arrangement will carry a decreased profit margin by around 18%, equivalent to 75 basis points compared to the previous agreement, with the possibility for further reduction.

Commenting on the recurrent postponement of the facility’s maturity date, during an interview with Al-Arabiya News Channel in June, Fahd Al Dughaither, the chairman of Zain KSA, stated that the delay is due to the company’s insistence on negotiating the best possible terms going forward.

Zain KSA also clearly stated that this extension represents the final stage of its balance sheet reorganization. This come after the company took out an export credit agency facility for 325 million dollars in June 2012, which in turn was followed by the company’s capital restructuring and rights issue in July 2012. Zain KSA also finalized refinancing a junior debt facility for 600 million dollars last month.

In June, Zain KSA also signed an agreement with Saudi Arabia's Ministry of Finance to postpone royalty payments to the government due over the next seven years at the rate of 800 million riyals per year according to the company’s calculations. These payments have been converted into a commercial loan, with the first installment due on June 1, 2021. This agreement provided Zain KSA with breathing space to renegotiate better terms with creditors as stated by the company chairman, Fahd Al Dughaither, during his interview with Al-Arabiya last month.

Zain KSA faces fierce competition in the Saudi market from competitors STC and Mobily, and has lost money every year since its formation in 2008. It became the third mobile operator in the Kingdom after the consortium led by Zain Kuwait won the license in 2007 for 6.1 billion dollars. Zain Kuwait owns 37% of Zain KSA.

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