Zain's OGM has record quorum of 84.69%
Sale of treasury shares transparent, best value for stakeholders
KUWAIT: Zain Group yesterday held its ordinary general assembly at its head office with an attendance rate of 84.69 percent at the request of a group of shareholders who own more than 10 percent of the company’s shares to discuss the Zain board of directors’ decisions regarding the company’s recent share transactions, the factors considered, the adoption of sound corporate governance principles and compliance with regulatory requirements regarding potential conflict of interest cases and the alignment with the interests of the shareholders.
Speaking to a packed audience, Zain Vice-Chairman and Group CEO Bader Nasser Al-Kharafi said: “The company’s board of directors and executive management have followed and taken into consideration all the laws, regulations, administrative and financial rules related to the sale of treasury shares, and inconformity with the Capital Markets Authority’s (CMA) regulations.” Kharafi added: “The board of directors has relied on the authorization granted by the ordinary general assembly meeting held on March 12, 2017 to buy or sell the company’s shares not exceeding 10 percent of the number of its shares in accordance with the minutes of the meeting.”
KUWAIT: Zain Group yesterday held its ordinary general assembly at its head office with an attendance rate of 84.69 percent at the request of a group of shareholders who own more than 10 percent of the company’s shares to discuss the Zain board of directors’ decisions regarding the company’s recent share transactions, the factors considered, the adoption of sound corporate governance principles and compliance with regulatory requirements regarding potential conflict of interest cases and the alignment with the interests of the shareholders.
Speaking to a packed audience, Zain Vice-Chairman and Group CEO Bader Nasser Al-Kharafi said: “The company’s board of directors and executive management have followed and taken into consideration all the laws, regulations, administrative and financial rules related to the sale of treasury shares, and inconformity with the Capital Markets Authority’s (CMA) regulations.” Kharafi added: “The board of directors has relied on the authorization granted by the ordinary general assembly meeting held on March 12, 2017 to buy or sell the company’s shares not exceeding 10 percent of the number of its shares in accordance with the minutes of the meeting.”
Provided background information, Kharafi said: “On June 13, 2017, the board of directors received an offer from Omantel to buy 425.7 million treasury shares representing 9.84 percent of Zain’s fully paid in and issued share capital. The offer was discussed with the board of directors and the sale price was agreed at 600 fils per share, representing a total cash consideration of $846.1 million (KD 255.4 million). Citibank was appointed as a third independent party to evaluate the offer and the feasibility study of the transaction, considering the book value of the share, which was 302 fils at that time,” he said.
“Citibank presented a report showing the importance of the offer, that the price offered is fair and acceptable, and the benefit that will accrue to the company from that transaction. The board approved the offer in principle on the recommendations of Citibank, and decided to take the necessary steps to start implementation and request approvals from the relevant authorities, headed by the Capital Markets Authority and the Boursa Kuwait,” Kharafi said.
He pointed out that a letter was sent to the CMA on June 22, 2017 seeking approval of the sale of the treasury shares. The company thereafter obtained approval from the CMA on July 16, 2017 to sell such treasury shares for a period of six months from the date of obtaining the approval. This approval was announced on July 17, 2017 on the website of the CMA and Boursa Kuwait, according to the law.
Kharafi stated that the board unanimously decided to approve the transaction on August 9, 2017. The transaction was announced to the CMA on August 10, 2017, thereby commencing the start of the auction for 10 working days in accordance with Boursa Kuwait’s instructions, where more than 5 percent of shares are offered.
“Following, on August 13, 2017, at the request of the CMA, a complete disclosure of the transaction was made which further elaborated the financial impact of the sale of treasury shares. On August 24, 2017, the auction result was announced without any party bidding more than 600 fils, which confirms that this price was the best offer that could be obtained for the stock at that time. Accordingly, the transaction was completed and the treasury shares were sold to Omantel,” he said. “Based on the procedures outlined in the timeline described above, the board of directors undertook all necessary measures, taking into account the coordination with the official and regulatory bodies and carrying out all required disclosures in accordance with the CMA’s provisions,” Kharafi said.
Kharafi reiterated: “There was no conflict of interest, and the Board achieved its duty with no personal benefit. The transaction was completed only in the interests of the company and shareholders.” Regarding the benefits of the deal, Kharafi said: “The transaction increased the company’s cash liquidity which clearly was beneficial for shareholders as it helped to reduce the company’s indebtedness by $846.1 million debt and reduce interest expenses of $25 million on an annualized basis through early repayment.”
Furthermore, Kharafi said: “Zain’s stock price rose 13.3 percent between the initial announcement of the deal and its completion two weeks later adding $515 million value to shareholders. The sale price was 33 percent above the price of Zain’s share price, a day before the deal was announced. The sale came at a 38 percent premium over a three-month weighted average price per share.”
Kharafi concluded: “The liquidity from the sale of these treasury shares will significantly enhance Zain’s strategic and financial flexibility at a time where we continue to seek opportunities in the digital space and invest in upgrading our modern networks to enhance the mobile experience for our customers, supporting our aspirations of becoming a premier integrated digital lifestyle operator.”
The below summarizes what Kharafi said during the Assembly of the benefits of the deal.
Transparency and professionalism
Bader Al-Kharafi told reporters after the General Assembly: “The meeting today was held professionally and transparently, and responded to all questions and enquiries by shareholders, and this is their inherent right.”
Sale of treasury shares
• The monthly average price per share before the sale of treasury shares was about 440 fils.
• The sale of treasury shares of which the Group received $846 million, which greatly enhanced the solvency and reduced the pressure on the balance sheet of the Group.
• The purchase price of treasury shares of 600 fils is equivalent to 7.3 times EBITDA, and is relatively high when compared with the corresponding transactions across the region and our peers in the industry.
• Within a short period after the sale of treasury shares, the share price rose to 550 fils, which greatly benefited shareholders with the market value of Zain Group increasing from $6 billion to more than $7 billion.
Facts about the deal
• Omantel’s offer was beneficial for Zain Group, considering the treasury shares were held since 2008 at a cost of KD 1.3, saving the distribution of approximately 690 fils per share as total cash dividends, so the actual cost per share is 630 fils.
• Omantel bought 425,711,648 shares worth 600 fils per share on August 24, 2017.
• The book value as of June 30, 2017 was equivalent to 302 fils.
• The selling price was 33 percent premium on the share price a day before the deal was announced, and the sale came at a 38 percent premium over the weighted average price per share within three months.
The benefits of Zain’s treasury shares sale
• Reduction of net debt to EBITDA from 2.1 times to 1.5 times.
• The group’s financial position was substantially enhanced by reducing the group’s debt by KD 254 million (net debt was KD 896 million at the end of the second quarter of 2017 and decreased to KD 642 million at the end of the third quarter of 2017).
• The deal comes at a time when the management needs cash to continue injecting investments into its subsidiaries and to meet the challenges and changes of the telecommunications industry, which has given the management a high valuation outlook for the sale.
• The group has saved $25 million in annual savings on interest payments through early repayment of debt.
• Sale of treasury shares increased cash flow and shareholders’ equity by KD 255 million.
Effect on the stock price and market capitalization
• The market value of Zain’s shares on the day of the announcement of the agreement rose by 4.4 percent, reflecting a value creation of $260 million to shareholders on the same day.
• Zain’s stock price rose 13.3 percent between the initial announcement of the deal and its completion two weeks later, adding $515 million value to shareholders.
Bader Al-Kharafi: The Board of Directors’ sole intention to sell treasury shares was in the interest of the company and its shareholders, undertaking all necessary requirements in coordination with official and regulatory bodies