Saudi Zain in credit talks after missing commitments

Saad al-Barrak, Zain's chief executive, told Al Arabiya television later that the unmet commitment was related to performance ratios the company was supposed to deliver to banks and not debt repayment.

The Saturday announcement by the firm -- 25-percent owned by Kuwait's Zain -- had raised fears Gulf Arab corporate debt problems may not be over at a time when economies in the region hope that 2010 will be a year of recovery.

Investor confidence in the region has been hit over the past eight months by up to $22 billion of debt restructurings at two prominent groups and more recently by Dubai World's request for a standstill on $26 billion worth of debt.

Shares in Zain Saudi closed nearly 1 percent down at their life low, dragging the main index <.TASI> of the Saudi bourse -- the only regional market trading on Saturday -- 1.4 percent into the red.

Zain Saudi Arabia said its creditors pardoned it under the condition they agree to a financial plan for 2010 which will be presented by the firm, the company said in a statement published on the Saudi bourse's website as an addendum to its earnings statement on Tuesday.

The firm is in contact with creditors to provide them with this information based on the company's current financial forecasts to ensure that it honors these commitments for the quarterly periods (2010), it said, citing an auditors' note.

It said, however, its ability to ensure a timely delivery on commitments and to continue in its business hinges on the firm's ability to ensure adequate funds on time and also on its success in discussing and changing some of the commitments for the four quarters to end-December, 2010.

Zain's Barrak told the television: Zain has not defaulted on any payment (of debt) not even on payment of interest.

He said the commitment, which he said had been mistranslated in the statement on the bourse website, was a $31 million shortfall from targeted revenues.

The bourse statement did not disclose details on the size of the missed commitments nor about the banks involved in the talks. It said, however, that current liabilities at the end of 2009 exceeded its current assets by 4.9 billion riyals .

The firm announced in August that it secured a $2.5 billion Murabaha financing facility.

Under a murabaha deal, an Islamic bank buys an asset from a third party and sells it to its customer at cost plus profit. This allows the bank to extend financing without charging interest, which is forbidden by Islamic law.

A successful conclusion to Zain Saudi Arabia's talks with the creditors would enable it continue classifying this ($2.5 billion) financing as a non-current liability, it added.

The company's management believes that it will succeed in the talks with creditors and obtain approval for changes in commitments and also succeed in its efforts to secure enough funds that will enable the company to honor its commitments in time through normal operations, Zain Saudi Arabia said.

The two-year facility was granted to repay a previous murabaha. The term of the facility was two years with options of extending for a further 12 months, Zain Saudi Arabia said last year in the statement that announced the closing of the murabaha.

Al Rajhi Bank <1120.SE>, Banque Saudi Fransi <1050.SE> and Calyon were initial mandated lead arrangers and bookrunners, while National Bank of Kuwait , and Arab National Bank <1080.SE> acted as senior mandated lead arrangers and bookrunners, it said.

Saudi British Bank <1060.SE> acted as the senior mandated lead arranger with Gulf Bank and Standard Bank acting as mandated lead arrangers, Zain Saudi Arabia said.

Zain Saudi Arabia shocked the global telecom industry when it paid a hefty $6.1 billion for a 25-year license to enter a nearly saturated market where cash-laden operators Saudi Telecom <7010.SE> and Mobily <7020.SE> -- affiliated to Emirates Telecommunications -- were engaged in a fierce turf battle.

Zain Saudi Arabia's argument was that its global presence would appeal to Saudi-based users and help it reshape the Saudi mobile phone landscape. About 15 months after it started business, the company claims an 18-percent market share.

Zain Saudi Arabia narrowed its net loss by 29.4 percent in the fourth quarter after its quarterly revenues more than doubled to a record 895 million riyals -- still 36 percent below the total amount of quarterly instalments for the Murabaha and the license fee. Its net loss for all of 2009 swelled 36 percent to 3.1 billion riyals after 2.28 billion riyal loss in 2008.

(Additional reporting by Asma Aslharif)

(Editing by Thomas Atkins and Toby Chopra)