This is the third time the board has announced such a plan, but the capital restructuring was sidelined by now-aborted deals to sell stakes in both Zain Saudi and parent Zain.
Zain Saudi has not set a date for a shareholders' meeting to discuss cutting its share capital to SR4.8 ($1.28 billion) from SR14 billion.
This will alleviate accumulated losses of SR9.2 billion, or 66 percent of its paid-up capital. Bourse rules say listed firms must cut their capital if losses exceed 75 percent.
The board wants to then issue SR6 billion of new shares.
"The rights issue will consist of raising fresh equity and the capitalization of subordinated shareholder loans to the company," Zain Saudi said in a statement.
The new equity will be used to reduce bank debt and enhance the operator's network, it added.
Zain Saudi has liabilities nearing SR21 billion, according to its first-quarter results. These include loans from founding shareholders of SR3.8 billion and a SR9.75 billion Islamic facility that can be rolled over until August 2012.
