The results push accumulated losses at Zain Saudi, which is 25-percent owned by Kuwait's Zain, to about SR9.2 billion ($2.5 billion), or 66 percent of its paid-up capital. Bourse rules say listed firms must cut their capital if losses exceed 75 percent, canceling some of the accumulated losses.
Zain Saudi has been in the news in recent weeks when a $950 million deal to sell Zain's quarter stake in the Saudi firm fell apart in September, and on Tuesday its chief executive, Saad Al-Barrak, resigned. "Zain Saudi needs to complete the restructuring sooner rather than later, and Al-Barrak's departure may pave the way for this," said Asim Bukhtiar, Riyad Capital head of research.
"Once this happens, investors can focus on Zain Saudi's results. We expect the company to turn profitable in 2013. If it can achieve this sooner, then the share price should respond."
Zain Saudi shares were down 0.84 percent at 1018 GMT, taking their losses to 24 percent in 2011.
The telecom operator reported a net loss of SR484 million in the quarter ended Sept. 30, compared with SR544 million a year earlier.
Analysts had forecast, on average, a loss of SR346 million, according to a Reuters poll.
Third-quarter gross profit was SR870 million, up from SR712 million a year ago.
"The decrease in net loss is due to the sizable expansion in (the) company's customer base, noticeable rise in calls volume, and the increased demand of broadband services within the company's own network," Zain Saudi said in a statement.
In February, the firm's board recommended cutting its capital by 55 percent and proposed subsequently issuing SR4.4 billion of new shares. The proposals have been in abeyance while the bid for Zain's stake was in play.
"It's hard to gauge how a rights issue would be received by the market; they are adding subscribers and trying to be competitive, but succeeding as a third operator is much more difficult than for the second operator," said Bukhtiar.
The operator competes with Saudi Telecom Co. and Mobily in the Kingdom. It had 16 percent of Saudi mobile subscribers last year, down from 18 percent in 2009, leaving it a distant third.
Late last month, Bahrain Telecommunications Co. and Kingdom Holding Co. withdrew their joint $950 million bid for Zain's 25 percent stake in Zain Saudi, partly over disagreement on loan guarantees.
"The capital restructuring has clouded the issue of Zain's stake in Zain Saudi, so once this is out the way, new bidders could come in," said Bukhtiar.
The firm's debt tops $5.5 billion, according to its first-quarter results, and it has yet to make a quarterly profit.
These mounting debts and losses have left it unable to keep up with the capital expenditure of its rivals.
"If Zain decides not to sell its Zain Saudi stake, then it will have to allocate more resources and capital to its Saudi unit," added Bukhtiar.
