This facility will be replaced by another with a five-year term as the operator, an affiliate of Kuwait's Zain, looks to bolster its balance sheet, with current liabilities now worth more than its assets, according to a statement to the Saudi bourse.
The firm is still seeking its first quarterly profit nearly four years since launching services and its accumulated losses now total about SR10 billion ($2.67 billion) after it announced a first-quarter loss of SR420 million. This compared with a loss of SR532 million in the year-earlier period.
Analysts polled by Reuters on average forecast Zain Saudi would make a quarterly loss of SR410 million.
Zain Saudi's total losses now equate to about 72 percent of its capital, while Saudi bourse rules say listed firms must reduce their capital if losses exceed 75 percent.
Zain Saudi has proposed cutting its share capital by about 66 percent, according to its fourth-quarter earnings statement, after which it plans to issue SR6 billion of new shares.
"Current liabilities exceed current assets and (Zain Saudi) has accumulated (a) deficit," the firm said. "The company believes it will be successful in meeting its obligations in the normal course of operations and its efforts in securing the necessary funding which is conditional to the company's capital restructuring."
Bahrain Telecommunications (Batelco) and Kingdom Holding scrapped a $950 million joint bid for Zain's 25 percent stake in Zain Saudi in September, leaving the parent company little choice but to increase its financial support to its affiliate.
"That liabilities exceed assets doesn't mean much because the rights issue is expected to get regulatory approval soon and Zain is underwriting this, which could mean its holding will increase significantly," said a regional telecoms analyst who declined to be identified.
"If I was a Zain Saudi shareholder I would be happy to see more commitment from Zain, which should mean the rights issue is completed within the next couple of months."
Zain Saudi's shares were up 8.3 percent at 0940 GMT on the Saudi bourse. As lowest-priced stock on the bourse, the firm's shares are a favorite of day traders and so are among the most volatile.
Zain Saudi said its quarterly loss narrowed because operating expenses fell by SR70 million as it cut back on advertising. Financing costs also decreased by about SR70 million, although depreciation and amortization costs rose by SR47 million.
First-quarter revenue was SR1.52 billion, up from SR1.48 billion in the corresponding period of 2011, but down from SR1.72 billion in the fourth-quarter of last year, which included the annual Haj pilgrimage to Makkah that brought millions of visitors to Saudi Arabia.
"Zain Saudi is targeting turning profitable on a net basis in 2014, but this looks unrealistic given the amount of amortization on its books," said the analyst, adding 2015 was more feasible.
The company appointed Fraser Curley as chief executive in March, its third CEO in six months.
That month, Zain's deputy also chairman said it would guarantee any new issues made by Zain Saudi.
