Rights Issue and Distribution
Frequently Asked Questions
Capital Reduction and Significant Transaction
What is capital reduction and why is it required for the
distribution of Almarai shares to Savola shareholders?
Why does Savola need to reduce its capital especially since
Savola just increased capital by rights issue?
● The Capital Reduction is part of 4 interlinked
transactions intended to fully distribute Almarai stake held
by Savola Group to its eligible shareholders
● The Board of Directors of Savola recommended
on 23/03/1446H (corresponding to 26/09/2024G) to reduce the
capital due to it being in excess of Savola’s needs. This is
to facilitate distribution-in-kind of Savola’s full stake
(~34.52%) in Almarai and optimize Savola’s capital structure
as Savola lacks sufficient retained earnings to facilitate
the full distribution of its stake in Almarai. As of June
30, 2024, Retained Earnings were approximately SAR 6.4bn
while fair value of Almarai stake held by Savola as of
October 21, 2024 was SAR 19.9bn compared to its book value
of SAR 8.8bn as of June 30, 2024.
● The capital
increase by SAR6.0bn does not have an impact on the retained
earnings of Savola. Proceeds from the capital increase were
used to pay down Savola’s debt and strengthen its financial
position.
It seems like the amount of capital reduction is lower than the book value of Almarai stake in Savola books. How will you distribute the remaining amount/balance of Almarai shares?
● Book value of Almarai in Savola’s books was SAR 8.8bn as of June 30, 2024. In accordance with applicable regulations, the overall distribution of Almarai investment contributed to a net reduction of total equity amounting to SAR 8.8bn that was effectuated by reduction of share capital and retained earnings by SAR 8.3bn and SAR 0.9 bn respectively, and an increase to other reserves by SAR 0.4 bn. The balance will be utilized from retained earnings to cover the market value of Savola’s stake in Almarai.
What is the expected percentage of reduction to the number of shares I own in my portfolio?
● The reduction rate for each share held in Savola will be
approximately 73.54% (reduction ratio of 0.7354 shares for
each 1 share).
● For a shareholder holding 1000 shares, this implies that
735.4 shares will be cancelled.
Does this mean that Savola will return cash to shareholders against the capital reduction?
● The capital reduction will occur via cancelation of shares against which the eligible shareholders of Savola will be compensated with a number of Almarai shares having fair value equivalent to the par value of Savola’s canceled shares after adjusting for fractional shares, if any, and in accordance with applicable regulations. The number of Almarai shares, distributed via Capital Reduction, is contingent on the market value of Almarai’s shares on Tadawul on the actual date of eligibility.
What will be the treatment for fractional shares, if any?
● Savola will aggregate fractional shares of Savola (if any)
resulting from the capital reduction into a single
portfolio, then sell them in the market at the prevailing
price. The proceeds from the sale will be distributed to the
eligible shareholders based on their holdings within thirty
(30) days from the date of the shareholders' approval in the
EGM on the capital reduction.
● Savola will aggregate fractional shares of Almarai (if
any) resulting from the distribution in kind into a single
portfolio, then sell them in the market at the prevailing
price. The proceeds from the sale will be distributed to the
eligible shareholders based on their holdings within thirty
(30) days from the date of the shareholders' approval in the
EGM on the distribution.
When can I expect to see the impact of the capital reduction on my portfolio?
● Savola’s capital reduction shall become effective by adjusting the number of shares owned on the day of the EGM by the shareholders who appear in Savola’s registry at the Edaa Depository Center at the end of trading on the second day (T+2) which is the suspension of trading of Savola shares for a period of two days on the Saudi Tadawul following the EGM on the capital reduction. The adjusted number of shares will be effective and appear in portfolios the trading day after the two day suspension. The deposit of the proceeds from the sale of the Savola fractional shares (if any) will be within thirty (30) days from the date the EGM approves the capital reduction.
What are the required approvals to complete the capital reduction process?
● In addition to the CMA approval received on 27th Oct, Savola will require 1) compliance with the Creditors’ Objection Period, and 2) EGM approval to execute the capital reduction. Additionally, procedures need to be completed with MoC to obtain the updated Savola commercial register and bylaws.
What is a Significant Transaction and how is it related to your proposed distribution of Almarai shares to your shareholders?
● Article 75 of the Companies Law defines a “Significant
Transaction” as the sale of a company’s assets “the value of
which exceeds 50% of the value of its total assets, whether
the sale is made through one transaction, or more. In such
case, the transaction which leads to the sale of more than
50% of the value of the assets shall require the general
assembly's approval. The said percentage shall be calculated
from the date the first transaction is concluded within the
previous 12 months.
● Additionally, the CMA's profit test (i.e., exceeds 50%) is
triggered, as per Part 11 of the CMA’s Rules on the Offers
of Securities and Continuing Obligations (OSCOs), by the
distribution of Almarai shares - calculated by dividing the
total Net Profit attributable by Almarai (the subject matter
of the significant transaction) to Savola by the total Net
Profit of Savola, based on the most recent reviewed interim
or audited annual financial statements, whichever is later.
Why does it require a Specialized Committee? What is the role of the committee and how are we concerned about its role?
● A specialized committee, required by Article 122 of the OSCOs for any significant transaction needing shareholder approval, is formed by Savola's Board of Directors which shall consist solely of independent board members or of other independent persons, or both, none of whom have a substantial interest in the proposed transaction. Its key role is to issue a letter to the shareholders of the issuer to advise shareholders on whether the terms of the relevant transaction are fair and reasonable and whether the transaction is in the interests of Savola and all its shareholders.
In what ratio will Almarai shares get distributed?
● For each Savola share held prior to the capital reduction,
the shareholder will receive 0.3044 Almarai shares.
● Any fractional shares of Almarai resulting from the
distribution in kind will be compensated by cash. Savola
will aggregate fractional shares of Almarai (if any)
resulting from the distribution in kind into a single
portfolio, then sell them in the market at the prevailing
price. The proceeds from the sale will be distributed to the
eligible shareholders based on their holdings within thirty
(30) days from the date of the shareholders' approval in the
EGM on the distribution.
What are the zakat/tax implications from distribution of Almarai shares?
● Gains resulting from the disposal of listed shares are subject to Zakat. Hence, the Company’s Zakat for 2024 will primarily be influenced by capital gain arising from derecognition of the Almarai investment; moreover, an increase in retained earnings resulting from the same gain would ordinarily elevate the Zakat Base in subsequent years. However, the distribution of Almarai shares is expected to reduce the retained earnings balance. Historically, the tax and zakat authorities considered the amended income as the minimum balance subject to Zakat. However, as per the latest Zakat regulations, the Zakat base shall be the lower of: the adjusted net profit for the taxpayer, or; the total non-deductible assets, added to the adjustments to the net income. More details shall be disclosed in the Shareholders’ Circulars related to Capital Reduction and Significant Transaction.
Right Issue and Share Distribution Transaction
Can you elaborate on the transaction?
● The transaction involves three stages consisting of a
rights issue of SR 6 billion, which is followed by a capital
reduction, and the distribution of Savola's entire stake of
34.52% in Almarai to eligible Savola shareholders.
● All three stages will require EGM and
regulatory approvals.
● Further material details
shall be disclosed once available.
What will be the impact on Savola’s capital structure?
● Savola aims to strengthen its financial position, pay down
its debt, and continue to invest in the growth of its
portfolio.
● The aim is to achieve a more conservative
leverage ratio along with a strong and sustainable financial
position.
What is the rationale of this transaction?
● The rationale is to unlock value. Over the past years, Savola’s market capitalization is approximately equal to the market value of its stake in Almarai.
Why is Savola opting for a rights issue?
● The proceeds will be used to strengthen Savola’s
financial position, pay down its debt, and invest in the
growth of its portfolio companies.
● It also
enables Savola to distribute its entire stake in Almarai to
its eligible shareholders after the planned capital
reduction.
At what valuation will the rights issue be conducted?
● The exact valuation has not yet been determined and will be communicated to shareholders after securing regulatory approvals.
What will be the impact of the rights issue on Savola’s shareholders?
● Participating shareholders in the rights issue will have
no dilution in their percentage ownership in Savola.
● Non-participating shareholders in the rights
issue will have dilution in their percentage ownership in
Savola.
Can Savola not meet its current debt obligations through existing cashflows?
● Savola has sufficient cash flows from operations to meet
its existing debt obligation and is well within any debt
covenants stipulated by its lenders.
● The
rights issue will enable Savola to strengthen its financial
position, pay down its debt, and continue to invest in the
growth of its portfolio in addition to enabling the
distribution of Savola’s stake in Almarai to eligible
Savola shareholders.
● The objective of the
distribution of Savola’s stake in Almarai to eligible
Savola shareholders is to unlock value for Savola’s
shareholders, who will benefit from direct exposure to the
growth potential and future dividend capacity of one of the
region’s leading food manufacturers while continuing
to participate in the future growth and value creation of
the Savola portfolio.
For shareholders not participating in the rights issue, how much will their holdings be diluted?
● For shareholders not participating in rights issue:
- There will be a dilution in the percentage of their
ownership in Savola.
- They will receive fewer Almarai
shares compared to participating shareholders.
- They
will benefit from the opportunity to sell their letter of
rights. The value of which will be determined as the
transaction progresses.
For shareholders not participating in the rights issue, will they still receive Almarai shares?
● Yes, they will receive Almarai shares but non-participation will result in the receipt of fewer Almarai shares compared to participating shareholders.
How and when can we subscribe to the Rights issue?
● Savola will communicate the full details once it receives the required approvals.
Given that Almarai has been a key asset in Savola’s portfolio, please explain the rationale for the distribution.
● Almarai has been the most successful investment for Savola
Group to date, with the value of Savola’s investment
in the company increasing more than 100-fold since the
initial investment in 1991.
● Historically, the
market capitalization of Savola has closely tracked the
market value of the stake held by Savola in Almarai.
● Going forward, Savola will focus on investing
in the growth of its core food and retail businesses and
shareholders will continue to benefit from direct exposure
to this growth too.
● Savola will also continue
to review strategic options to realize value from portfolio
companies that demonstrate attractive distribution and
monetization potential.
How is Almarai accounted for in Savola’s books?
● Almarai is accounted as an investment in associate. Income from Almarai flows within Savola’s operating income.
How many Almarai shares per Savola share will Shareholders receive?
● This will be determined and communicated following the receipt of the relevant regulatory approvals.
When and how will shareholders receive the Almarai shares?
● This is subject to the relevant regulatory and EGM
approvals and will take place following the rights issue.
● Further information will be communicated
following the required approvals.
What is capital reduction?
● A capital reduction is the process of reducing a company’s share capital through the cancellation of a certain number of the existing shares.
Why are you planning a capital reduction?
● Following the rights issue, Savola will perform a capital reduction at par value, reducing the number of issued shares, which will optimize Savola’s capital structure and enable the distribution of Savola’s stake in Almarai to its shareholders.
What is the investment proposition of Savola following the transaction?
● Post transaction, Savola will continue to operate as a
strategic investment holding company, operating in the food
and retail sectors in the MENAT region.
●
Savola’s future unique Investment proposition
includes:
- Market-leading diversified FMCG
player across the Kingdom and MENAT region.
-
Resilient business model prioritizing resources to focus on
core operating business with growth potential.
-
Strong cash flow generation supporting optimized capital
structure and shareholder distributions.
- Support
future M&A strategy, to provide for the necessary
liquidity to fund acquisitions.
What is Savola's future vision for Panda in light of this transaction?
● As a strategic investment holding, Savola continues to assess value creation opportunities through organic and inorganic growth avenues and monetization of assets. Panda is a significant part of the Group portfolio. Shedding light on the strategic direction of Panda is relevant to provide a comprehensive view in the light of this transaction. Savola is considering listing of Panda in the future.
