Shareholders of United Wire Factories Co. (Aslak) will vote on a 20% capital cut to SAR 351 million from SAR 438.75 million on having a capital surplus, during the extraordinary general meeting (EGM) today, July 15, the company said in a statement to Tadawul.
Creditors shall be invited to submit their objections thereto within 60 days from the date of publishing the capital decrease decision in a daily newspaper distributed in the area where the company’s head office is located.
After the completion of the 60-day period, the stock will be suspended on the day following this period (day 61). Trading resumes immediately after 2 business days from the suspension date.
The statement said that 8.78 million shares (1 share for every existing 5 shares) will be written off.
Aslak will pay a reduction value of SAR 87.8 million from its cash balances, at a nominal value of SAR 10 per share canceled for the eligible shareholders within 3 working days of trading resumption.
The amounts will be deposited in the eligible shareholders’ portfolios as a compensation for the canceled shares.
Fractional shares (if any) will be collected in one portfolio to be sold at the prevailing market price.
The proceeds from this sale will be distributed to the beneficiaries, according to their ownership of the fractional shares, within 30 days from the end date of the creditors ’objection period.
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Share Price Calculation Methodology Following Capital Cut |
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a. Share price before capital cut (Hypothetical) |
SAR 14.60 |
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b. Number of shares before capital cut |
43.87 mln shares |
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c. Market value of the company’s shares before capital cut (a) x (b) |
SAR 640.57 mln |
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d. Payment to shareholders |
(SAR 87.75 mln) |
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e. Market value of the company’s shares after capital cut (c) + (d) |
SAR 552.82 mln |
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f. Number of shares after capital cut |
35.10 mln shares |
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g. Market value per share after capital cut* (e)/(f) |
SAR 15.75 |
* Adjusted price after trading resumption (i.e. after the creditors’ objection period expires and the reduction decision takes effect).
The move will have a positive impact on the company, as the paid capital exceeds the immediate requirements, the statement added.
The capital cut will lead to a more efficient capital structure for the company, which will improve performance indicators, and enhance the earnings per share (EPS), dividends, and return on equity.
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Impact of Capital Cut |
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Indicator |
Before capital cut and shareholders compensation |
After capital cut and shareholders compensation |
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Earnings per share |
0.50 |
0.63 |
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Dividend yield per share |
SAR0.25 |
SAR 0.31 |
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Return on shareholders’ equity (ROE)* |
4.3 % |
5.1 % |
* Indicators were calculated based on the financial statements as of Dec. 31, 2019
Trading suspension measures for profitable companies are as follows:
- The EGM decides to decrease capital, which comes in excess of the company’s need.
- In such case, the company announces the creditor objection period and decision enforcement date.
- When the decision becomes effective, Tadawul halts trading on the stock for two sessions following the decision enforcement date.
- Trading resumes immediately after two sessions.
Article 145 in the company’s articles of association stipulates that if the capital decrease is due to being in excess of the company’s need, creditors shall be invited to submit their objections thereto within 60 days from the date of publishing the capital decrease decision in a daily newspaper distributed in the area where the company’s head office is located.
If a creditor objects and presents his documents to the company within the said period, the company shall pay the debt owed thereto if it is due or provide sufficient guarantee if the debt is not yet due.
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