SA’AF Capital outlines Al Kathiri’s restructuring plan

Khalid Alkrewi, CEO and Managing Director of SA’AF Capital

Al Kathiri Holding’s restructuring plan comprises two phases, starting with a capital reduction to write off accumulated losses, followed by a SAR 150 million rights issue to rebuild the company’s capital base, Khalid Alkrewi, CEO and Managing Director of SA’AF Capital, said.

In an interview with Argaam, Alkrewi added the high reduction ratio reflects the scale of accumulated losses that must be absorbed from an accounting perspective before a capital increase can have a tangible impact on the financial position. Technically, it would not be possible to fairly price a new offering on a depleted capital base, he added.

SA’AF Capital’s assessment, in its capacity as the offering and strategy adviser, is that the two steps together represent a necessary measure consistent with the technical principles for addressing the company’s capital position.

Alkrewi said SA’AF Capital has a dual role, serving as financial adviser for the SAR 150 million rights issue and as the company’s strategic adviser. He stressed that the capital increase must be based on a clear strategy and an appropriate roadmap for the company’s current position.

He added that the company’s role goes beyond the procedural and regulatory execution of the offering to working with the board and executive management on the strategic aspects that will follow the capital restructuring.

Alkrewi said the decision to raise SAR 150 million through a rights issue as a complementary step to the capital reduction was based on two reasons. First, addressing the equity shortfall requires an equity instrument rather than debt, given the company’s existing debt obligations.

The second reason, which he said is more important from shareholders’ perspective, is that a rights issue gives existing shareholders priority to participate in the offering, preserving their ownership percentages, rather than a new public offering that could dilute their stakes without compensation.

Alkrewi also said the nominal value of the offering is SAR 0.5, while the SAR 150 million capital increase was determined based on the company’s actual liquidity needs to finance its operating plan and implement its strategy, as will be detailed in the prospectus once approved by the Capital Market Authority (CMA).

The key components of the restructuring plan are to correct the capital structure through the reduction followed by the increase, while providing the liquidity needed to implement the operating plan and ease the burden of existing obligations, he noted.

A sound capital base is a practical requirement for qualifying for bank guarantees and favorable credit terms, Alkrewi said, noting that an eroded capital base could result in the loss of opportunities for purely financial reasons, regardless of the company’s operational efficiency.

Addressing this aspect would improve the company’s ability to obtain bank guarantees, strengthen its competitiveness for new projects and allow it to pursue opportunities in other sectors, while creating scope for a more stable credit and commercial relationship, he added.

Regarding the expected path to reaching breakeven and then profitability, Alkrewi said this will depend on operating performance and market and sector conditions and will not be a direct result of the capital increase alone.

He said the capital increase will provide the foundation and give management the necessary room to implement its plan, stressing that it would not be appropriate to provide financial or time-based forecasts beyond what will be included in the prospectus.

Regarding the operating plan and the use of the capital increase proceeds, Alkrewi said SA’AF Capital is working on appointing the parties involved in the rights issue transaction, while its engagement as the company’s strategic adviser will run for two years.

He added that work is underway with the board and executive management to formulate the company’s vision and operating plan. The company will announce the details to the public through official Tadawul channels once they have been finalized, including the use of the capital increase proceeds.

He noted that it would be inappropriate to preempt that announcement by specifying a timeline or details that have not yet been approved.