DUBAI - Saudi Electricity Co said on Monday it has signed an agreement with the government to convert state liabilities worth 167.92 billion riyals ($45 billion) into a subordinated perpetual financial instrument to strengthen its balance sheet.
The Shariah-compliant perpetual equity-like instrument will carry a 4.5% profit rate and a redemption option, it said in a statement.
"With the signing of the agreement and the implementation of the approved reforms, in addition to the cancelling of the government fees imposed on the company, SEC will be better able to fulfil its obligations," Khaled bin Saleh al-Sultan, chairman of SEC, said in a statement.
This conversion is considered non-dilutive and will therefore have no impact on SEC's existing shareholders’ stakes.
Shares of SEC were up 1% in early trade.
The Public Investment Fund, Saudi Arabia's sovereign wealth fund, owns a 74% stake in SEC, while Saudi Aramco owns 6.9%, based on its 2019 annual report.
The sector's regulator, the Electricity and Cogeneration Regulatory Authority, will adopt a new mechanism to determine SEC's required revenue as part of the reforms, SEC said.
The required revenue will ensure that SEC is able to cover its efficient cost to provide service and achieve a fair return on invested capital, with this mechanism to be effective from January 1, 2021.
The Saudi government will continue to cover the difference between the required revenue and SEC’s actual revenue through the balancing account.
The financial instrument represents about 33.4% of SEC's total assets at the end of the third quarter and includes 3.35 billion riyals in dividends owed to Saudi Aramco, it said.
SEC has appointed HSBC Saudi Arabia as financial adviser and Abuhimed Alsheikh Alhagbani Law Firm in cooperation with Clifford Chance LLP as its legal advisers.
($1 = 3.7504 riyals)
(Reporting by Saeed Azhar; editing by Jason Neely) ((Saeed.Azhar@thomsonreuters.com; +971 44536787; Reuters Messaging: email@example.com))