RISK FACTORS
2.3 Risks Related to the Offered Securities
2.3.1 Risks Relating to Possible Fluctuation in the Price of the Rights Issue
The market price of the Rights Issue may be subject to significant fluctuations due to the change in market trends with respect to the Company’s shares. These fluctuations may be large due to the difference in the permissible range of change in the trading prices of the rights shares compared to the permissible change in the common shares. Since the rights shares trading price depends on the company’s current share price, and the market’s perception of the potential price of the shares after the subscription process, these factors, in addition to what was mentioned in the paragraph “risks of potential fluctuations in the share price” mentioned above, may affect the price of the rights issue.
2.3.2 Risks Relating to Potential Fluctuations in the Share Price
The market price of the rights during the trading period may not be an indication of the market price of the company’s shares after the offering. Also, the company’s share price may not be stable and may be affected significantly due to fluctuations resulting from market conditions related to the company’s current rights or shares. These fluctuations may also result from many factors, including but not limited to: stock market conditions, poor performance of the company, inability to implement the company’s future plans, entry of new competitors to the market, change in the vision or estimates of experts and analysts of the stock market, and any announcement of the company or any other of its competitors related to mergers and acquisitions or strategic alliances.
The sale of large quantities of shares by the shareholders or the belief that such sale is likely to occur will negatively affect the price of the company’s shares in the market. In addition, shareholders may not be able to sell their shares in the market without negatively affecting the share price. There is no guarantee that the market price of the company’s shares will not be lower than the offering price, and if this happens after the investors subscribe to the new shares, the subscription cannot be canceled or modified, and therefore the investors may incur losses as a result. In addition to the above, there is no guarantee that the shareholder will be able to sell its shares at a price equal to or greater than the offer price after subscribing to the new shares.
The company seeks to increase its capital by offering fifty-two million five hundred and sixty-six thousand nine hundred and thirty (52,566,930) ordinary shares at an offer price of ten (10) Saudi riyals per share by issuing rights shares with a total value of five hundred twenty-five million six hundred and sixty-nine thousand and three hundred (525,669,300) Saudi riyals, which represents an increase in the company’s capital by (1000%) so that the company’s capital becomes five hundred and seventy-eight million two hundred and twenty-six thousand two hundred and thirty (578,226,230) Saudi riyals. Accordingly, the eligibility coefficient is (10) right for every one (1) share owned by the registered shareholder on the eligibility date. Accordingly, if a Registered Shareholder owns one thousand (1,000) shares on the eligibility date, it will be allotted ten thousand (10,000) shares in exchange for the shares it owns.
In the event that the extraordinary general assembly agrees to increase the company’s capital as indicated above, the company’s share price will decrease as a result of the capital increase, for example, if the closing price of the company’s shares on the day of the extraordinary general assembly reached (222) Saudi riyals. It is expected to reach (29.27) Saudi riyals at the opening of the next day, and the change represents the decrease of (192.73) Saudi riyals. In the event that any of the shareholders registered in the company’s shareholders register at the Depository Center fails to subscribe at the end of the second trading day following the date of the Extraordinary General Assembly meeting, this will lead to the decrease in their ownership percentage in the company.
2.3.3 Risks Relating to Non-Profitability or Sale of Rights Shares
There is no guarantee of profitability of the stock by trading it at a higher price. In addition, there is no guarantee that it will be able to be sold in the first place, which indicates that there is no guarantee of sufficient demand in the market to exercise
the rights issue or receive compensation from the company, bearing in mind that the investor who did not subscribe or sell its rights shares, and the owners of fractional shares, may not get any consideration if the sale takes place during the remaining offering period at the offering price.
2.3.4 Risks Relating to the Decrease in the Demand for Rights Shares and Company shares
There is no guarantee that there will be sufficient demand for the company’s subscription rights during the trading period in order to enable the holders of the rights shares to sell those rights and make a profit from them. Also, there is no guarantee that there will be sufficient demand for the company’s shares by institutional investors during the remaining offering period. In the event that institutional investors do not bid for the remaining shares at a price higher than the offer price, there will be no compensation to the unexercised rights holders. Likewise, in the event that these institutions do not wish to subscribe, or when shares remain unsubscribed by them, the underwriter will buy those shares at a price equal to the offering price, and therefore there will be no compensation for the unexercised rights holders.
In addition, there is no guarantee that there will be sufficient market demand for the shares obtained by the subscriber through the exercise of the rights shares, or through the remaining offering, or from the market, which will negatively affect the share price and the profitability of the company and the shareholder.
2.3.5 Risks Relating to Speculation in Rights Shares
Speculation in rights shares is subject to risks that may cause material losses. The permissible daily fluctuation range of the trading price of the rights shares is greater than the permissible daily fluctuation range of the market price (which represents in 10% the rise and fall of the closing price of the previous day). There is also a direct relationship between the company’s share price and the indicative value of the right, where the indicative value of the right reflects the difference between the market value of the company’s shares during the trading period and the offering price. Accordingly, the daily price limits (i.e. the daily fluctuation range) for rights trading will be affected by the daily price limits for shares trading.
In the event that the shareholder did not sell, it will have two options, either to exercise these rights to subscribe to the new shares before the end of the subscription period, or not to exercise that. In the event of failure to exercise the rights, the investor may be subject to a loss or decrease in the value of its investment portfolio, or profit in the event of selling shares during the remaining offering period at a price higher than the offering price. Therefore, investors shall review the full details of the mechanism for listing and trading new rights and shares and their method of operation, and familiarity with all the factors affecting them, in order to ensure that any investment decision is based on full awareness, (for more information, please review Section No. 12 “Information related to shares and provisions of Offering and Terms and Conditions” of this prospectus).
2.3.6 Risks Relating to Low Ownership Percentage
If the rights holders do not subscribe to all of their rights, their ownership and voting rights in the company will be reduced. Also, there is no guarantee that the return received by those who wish to sell their rights from the registered rights shares holders during the trading period will be a sufficient return to fully compensate for the decrease in their ownership percentage in the company’s capital. There is also no guarantee that there will be a compensation amount to be distributed to the eligible shareholders who did not exercise their right to subscribe or to the owners of fractional shares in the event that the investment institutions during the remaining offering period did not submit offers for the remaining shares at a high price, or if the amount of compensation (if any) is sufficient to compensate for decrease in the percentage of ownership in the capital of the company.
In the event that the rights holders do not exercise their full rights and the investment institutions during the remaining offering period do not submit offers for the remaining shares, the underwriters will intervene to purchase the remaining shares and this will lead to a decrease in the ownership percentage of the rights holders as well as their voting rights in the company and their share in the profits.
The coverage of rights by the underwriters may lead to obtaining a substantial percentage of the company’s capital, which allows the underwriter to control the voting rights in the company’s general assemblies as well as control the decisions based on them. (For more information, please refer to Section No. 11 “Subscription Coverage” of this Prospectus).
2.3.7 Risks of Not Exercising the Subscription Rights in a Timely Manner
The subscription period begins after (3) three working days from the approval of the extraordinary general assembly including the approval of the capital increase on ••/••/••••H (corresponding to ••/••/••••G), and ends on ••/••/••••H (corresponding to ••/••/••••G). Eligible shareholders and the financial intermediaries they represent shall act to ensure that all necessary instructions are fulfilled before the end of the subscription period. The subscription application may be rejected in the event that the rights holders and the financial intermediaries are not able to follow the necessary procedures (please see Section No. (12) “Information Related to Shares and Offering Terms and Conditions”).
If the Eligible Shareholders are not able to properly exercise the Subscription Rights by the end of the Subscription Period, based on their rights shares, there is no guarantee that there will be an amount of compensation distributed to the Eligible Shareholders who are not participating or who have not properly exercised the subscription procedures.
2.3.8 Risks Relating to Dividend Distribution to Shareholders
The company’s decision to distribute profits depends on many factors, including achieving profits in the future, the financial position and capital requirements, distributable reserves, the credit limits available to the company, the company’s investment requirements, and the general economic situation, in addition to several other factors, the importance of which the Board of Directors decides from time to time. The capital increase will lead to a decrease in earnings per share in the future, and thus may affect the market value of the company’s shares as the company’s profits will be divided by a larger number of shares as a result of the capital increase.
The Company does not guarantee that any dividends will be paid to shareholders in the future, nor does it provide any guarantee as to the amount to be paid in any given year. Dividend distribution is subject to certain conditions and controls stipulated in the company’s articles of association.
2.3.9 Risks Relating to Selling Large Number of Shares
Selling a large number of the company’s shares in the financial market after the subscription or anticipating such an operation will negatively affect the prices of these shares in the market.
2.3.10 Risks Relating to the Possibility of Issuing New Shares
The issuance of any new shares by the company depends on the approval of the extraordinary general assembly of the shareholders. The ownership of the shares will decrease proportionately, in addition to its attachments of the right to vote and receive profits, which will affect the market price of the share.
The company seeks to increase its capital by offering fifty-two million five hundred and sixty-six thousand nine hundred and thirty (52,566,930) ordinary shares at an offer price of ten (10) Saudi riyals per share through the issuance of rights issue shares, which represents an increase in the company’s capital by (1000%) and the company’s capital becomes five hundred and seventy-eight million two hundred and twenty-six thousand two hundred and thirty (578,226,230) Saudi riyals. Accordingly, the eligibility coefficient is (10) right for every one (1) share owned by the registered shareholder on the eligibility date. Accordingly, if a Registered Shareholder owns one thousand (1,000) shares on the Eligibility Date, it will be allotted ten thousand (10,000) shares in exchange for the shares it owns. In the event that the shareholder decides to exercise the rights granted to it, it will need to pay one hundred thousand (100,000) Saudi riyals in return for subscribing to ten thousand (10,000) rights, with a value of ten (10) riyals for each right.
In the event that the extraordinary general assembly agrees to increase the company’s capital as indicated above, the company’s share price will decrease as a result of the capital increase, for example, if the closing price of the company’s shares on the day of the extraordinary general assembly reached (222) Saudi riyals, then it is expected to reach (29.27) Saudi riyals at the opening of the next day, and the change represents the decrease of (192.73) Saudi riyals. Accordingly, if a registered shareholder owns one thousand (1,000) shares on the eligibility date, the market value of its shares at the end of the day of the general assembly will reach two hundred and twenty-two thousand (222,000) Saudi riyals, and ten thousand (10,000) rights will be allotted to it in exchange for his shares. In the event that the shareholder decides to exercise the rights granted to it, it will need to pay one hundred thousand (100,000) Saudi riyals in return for subscribing to ten thousand (10,000) rights, with a value of ten (10) riyals for each right. So that the market value of the shares after subscribing to the full rights amounted to three hundred twenty-two thousand (322,000) Saudi riyals. In the event that any of the shareholders registered in the company’s shareholders register at the Depository Center fails to subscribe at the end of the second trading day following the date of the Extraordinary General Assembly meeting, this will lead to the decrease in their ownership percentage in the company.
2.3.11 Risks Relating to Future Data
The future results and performance data of the company cannot be actually predicted and may differ from what is contained in this prospectus. As the achievements and ability of the company to develop is what determines the actual results, which can not be expected or determined. The inaccuracy of data and results is considered one of the risks that the shareholder shall know so as not to affect its investment decision. Whereas, in the event that the future results and performance data are fundamentally different from what is mentioned in this prospectus, this will lead to the loss of part or all of the shareholders’ investment in the company’s shares.
2.3.12 Risks Relating to Suspending Trading or Canceling the Company’s Shares as a Result of not Publishing its Financial Statements During the Statutory Period
In the event that the company is unable to publish its financial information within the statutory period (30 days from the end of the financial period for the initial financial statements and three months from the end of the financial period for the annual financial statements), the procedures for suspending the listed securities will be applied in accordance with the listing rules - approved by the decision of the Board of the Capital Market Authority. The Board of the Capital Market Authority No. (2017-123-3) dated 09/04/1439H (corresponding to 27/12/2017G) and amended by its Resolution No. (1- 19-2022) dated 12/07/1443H (corresponding to 13/02/2022G) - which stipulates that the market suspends the trading of securities for a period of one trading session following the expiry of the statutory period. In the event that the financial information is not published within twenty trading sessions following the first suspended trading session, the Saudi Stock Exchange (Tadawul) will announce the re-suspension of the company’s securities until it announces its financial results. In the event that the suspension of trading the company’s shares continues for a period of six months without the company taking the appropriate measures to correct that suspension, the Authority may cancel the listing of the company’s securities. The financial market lifts the suspension after one trading session has passed, following the announcement of the company’s financial results. However, in the event that the company is late in announcing its financial results, or if it is unable to publish them within the statutory period referred to above, this will cause the company’s shares to be suspended or to cancel the listing of its shares, which will negatively and fundamentally affect the interest of the company’s shareholders and the company’s reputation and the results of its operations. In addition, the Capital Market Authority may cancel the offering of the company’s rights shares in the event that it deems that the offering may not be in the interest of the shareholders.