Saudi Telecom to raise capital by $8bn in bonus shares

Saudi Telecom Co. (STC), the most profitable mobile operator in the Middle East, will increase its capital by SAR30bn ($8bn) through the issuance of bonus shares.

The company, which is controlled by the kingdom’s sovereign wealth fund, plans to issue 1.5 bonus shares for every existing share, through capitalising retained earnings, according to a statement. This will raise STC’s capital to SAR50bn, making it the largest capital increase by a Saudi company, Chairman Prince Mohammad bin Khalid Al-Faisal, said in the statement.

STC shares jumped as much as 9.8 per cent on Sunday before paring gains, posting its biggest daily rise in eight years, while the country’s benchmark index declined.

The capital increase comes as STC has been embarking on a plan to expand into new business lines, selling off stakes in some of its units, and looking for international acquisitions. In the past few years its grown its digital payments arm to be valued at over $1bn, listed a stake in its Internet services arm, and said it would spin off its data center, submarine cables and points-of-presence assets into a new firm.

Read: Saudi Telecom spins off data centre, cable assets to new firm

In February, it invested in Pakistani tower company Awal Telecom, signaling a fresh push to expand outside its domestic market after talks in 2020 to acquire a majority stake in Vodafone Group Plc’s Egyptian unit ended without a deal.

Read: Saudi Telecom’s subsidiary buys Pakistani infrastructure provider to broaden footprint

The bonus share issue is positive for STC as it provides capital to fund a strategy of “pivoting away from a traditional telecom service provider to broader scope of a technology company,” said Talha Nazr, senior equity research analyst at SNB capital. The company also has “ample room to increase its debt levels,” he said.

STC also plans to change its dividend policy after the capital increase, committing to a minimum payout of SAR0.4 per share, from a fixed dividend of SAR1 a quarter, it said in a separate statement. The company is “still committed to pay SAR8bn in dividends per year,” it said.

Sovereign wealth fund the Public Investment Fund raised $3.2bn from selling some of its shares in STC last year. The deal was the largest secondary offering in the Europe, Middle East and Africa region in 2021, and left the PIF with a 64 per cent stake in STC.