Riyadh: Saudi billionaire prince Alwaleed bin Talal’s announcement of a rescue plan for his investment vehicle indicates he expects a long road to recovery for his shares in Citigroup Inc.
The plan will help Alwaleed wipe out some $7.8 billion (Rs35,724 crore now) of accumulated losses his firm has reported by end-September but it still leaves it with an additional $4 billion-plus in unrealized losses that could swell further, especially if US equity markets don’t improve in 2010.
His 95%-owned Kingdom Holding Co. said this week that it would slash its capital by almost half and he announced the free-of-charge injection from his own pocket of 180 million Citi shares—which he valued at $3.31 each—into its balance sheet.
Analysts say this was necessary to shore up the finances of the firm whose assets were hurt by the global market turmoil as it prepares for the launch of major property projects and avoid the potential damage if it loses its listing.
Shoring up: A file photo of Saudi prince Alwaleed bin Talal in Paris. Owen Franken / Bloomberg
“This plan exempts the company of the need to liquidate assets, including its shares in Citi. I don’t think he will sell Citi,” said Hesham Abu-Jamea, head of asset management at Bakheet Investment Group, one of Saudi Arabia’s leading independent investment services firm.
Kingdom Holding’s spokeswoman Heba Fatani declined to discuss the implications of Tuesday’s announcements and said Prince Alwaleed could disclose more details about his investment in Citi at a press conference that may be held on Monday.
Kingdom Holding, whose stock has lost almost half its value since listing on the Saudi bourse in 2007, had losses of 65% of its capital at the end of September, and losses exceeding 75% would require a suspension in its stock.
For Kingdom’s investment in Citi—its most valuable asset, estimated at 3.6% of the bank’s capital—the plan should put the prince in a more comfortable situation and fulfil his repeated pledges not to sell the shares.
“The plan was devised to help Kingdom cope with unpleasant turns of events that could affect Citi. The prince appears to be coming to terms with the fact that it could take years for Citi to turn around its fortunes,” said a US-based investment adviser who had past dealings with Alwaleed’s company.
Prince Alwaleed’s relationship with Citi began also at troublesome times for the bank: He injected $590 million into the bank in 1991. He told Fortune magazine in 2007 that he has paid back then $2.75 per share adjusted for share splits.
The investment has played a big role in raising both his personal profile among hundreds of third-generation Saudi princes who are grooming themselves for greater influence in domestic politics and that of Kingdom Holding which started off as a consulting business.
“There is no sentiment in business, but I guess yes you can speak of sentimental value for Prince Alwaleed’s investment in Citi,” the US adviser said.
Last month, the nephew of King Abdullah said he would not sell his shares in Citi after Kuwait’s sovereign wealth fund reaped a handsome $1 billion-plus profit from the sale of Citi shares.
A few days earlier, the prince said 2010 would be a year of stabilization for Citi after he contributed to its recapitalization in 2008 alongside the Abu Dhabi Investment Authority, which has filed a lawsuit against the bank over the deal.
And while everyone was eager to hear from Alwaleed about what he intended to do with Citi shares, he sprang the surprise of reducing Kingdom Holding’s capital and further raised the firm’s exposure to Citi.
“He is improving Kingdom’s books so that it becomes able to borrow. It has nothing to do with the need to sell assets,” said Ibrahim al-Alwan, deputy chief executive of KSB Capital, a Saudi-based investment bank.
The US-based adviser said: “This is a purely Kingdom-to-Kingdom affair. It shows that he is biding his time with Citi and doing what he can to help Kingdom push ahead with the projects. He wants individual shareholders to be patient.”
Kingdom is in the early stages of executing mega property projects in Saudi Arabia, which include a record-breaking tower in the Red Sea port city of Jeddah.
The firm will need to borrow to help finance these projects at a time when the Saudi banking system is still reeling from the repercussions of a multi-billion dollar debt default by two unlisted family-owned conglomerates, which have made lenders more meticulous.
“The capital reduction is a pre-emptive move by the company to improve its balance sheet,” said Mohamed al-Omran, an analyst at the Saudi Economic Association, a semi-official think tank.
Prince Alwaleed is also in final discussions to sell a stake in Rotana Media Co.—one of his most valuable unlisted firms—to Rupert Murdoch’s News Corp., in which the prince is a minority shareholder.
But whether this sale is linked to financing needs for the projects has not been made clear by Kingdom Holding or the prince’s entourage.
Kingdom Holding gets most of its revenue from dividends from its shareholdings and from its hotel business. Shareholders who bought into its $860 million initial public offering in 2007 have received no dividends so far due mainly to the turmoil that hit global market and slashed the firm’s revenues.
Analysts said the timing of the capital reduction plan, a few days before the announcement of fourth quarter earnings, could indicate that Kingdom Holding expects its results to be worse than its $8.26 billion loss in the same period in 2008.