Saudi Integrated Telecom Co. ordered to close for business

Saudi retail investors face hefty losses after a royal decree ordered the liquidation of Saudi Integrated Telecom Co. (SITC), which floated its shares in an initial public offer (IPO) in 2011 but never commenced operations.

SITC’s failure highlights the dominance of speculative retail traders in the Saudi market, who chase rising prices with little regard for fundamental valuations.

The Capital Market Authority (CMA) bourse regulator halted trading in SITC’s shares on February 5 when the stock was trading at SAR24.35 (US$6.51), more than double the initial public offer price of SAR10 but half the all-time closing high of SAR50.50 hit in March 2012, which valued the company at 5.05 billion Saudi riyals ($1.35 billion).

However, some shareholders at least could be in line to receive a pay-out from the liquidation committee, which comprises the CMA, the ministry of commerce and the telecom regulator, as the company had 100 million shares in issue and reported net assets of SAR910 million at the end of 2012.

King Abdullah’s decree said that the company should be liquidated within six months and the priority in the repaying of its obligations is to its non-founder subscribers and shareholders.

The monarch ordered the company’s liquidation last month after promising in 2012 to ensure trading rules applied to everyone, including the ruling Al-Saud family. The company’s chairman is Prince Saud bin Khaled bin Abdullah Al Saud.

Prince Saud owned a 43 per cent stake in SITC as recently as last September, according to Thomson Reuters data. This was held through various holding companies and these and other founding shareholders made a winning bid in 2007 of SAR1 billion for a licence to provide fixed-line services.

The founding shareholders were to pay SAR650 million of this fee, with the other SAR350 million to be raised through an IPO and a five per cent stake sale to the state pension fund.

SITC concluded its IPO and listed in June 2011, despite still not receiving its telecom operating licence and recorded no revenue that year or in 2012, Thomson Reuters data shows.

The founding shareholders did not pay up for their part of the licence fee until January this year, according to a stock market filing, but the company told Reuters it had provided the regulator in the interim with a bank guarantee in lieu of immediate payment of the fee.