In a move aimed at correcting its financial course and restructuring, Methanol Chemicals Company (Chemanol) announced that it has officially submitted its application to the Saudi Capital Market Authority for a capital reduction. This step complements the measures recently taken by the Board of Directors to address the company's financial situation.
Details of the capital reduction plan
The company revealed in its statement that the plan includes a capital reduction through the cancellation of approximately 52,450,863 shares. This significant measure aims to address accumulated losses that have reached approximately 85.7%, necessitating urgent intervention in accordance with the financial regulations of the Saudi market.
The company had paved the way for this decision by announcing on the Saudi Stock Exchange (Tadawul) website on October 9th the Board of Directors' recommendation to reduce its capital, before revising the recommendation on December 25th to reflect new financial data. Through this process, Kemanol aims to offset accumulated losses of SAR 577.9 million, a revised figure compared to previous estimates of SAR 535.5 million.
Use of the regulatory reserve and processing mechanism
As part of its comprehensive restructuring plan, Kemanol clarified that it will not only write off shares but will also utilize a portion of its financial reserves. The company will use approximately SAR 53.4 million from its statutory reserve, representing about 59.9% of its total available reserves, to cover the remaining accumulated losses not covered by the capital reduction.
Organizational context and the importance of the step
Capital reduction to offset losses is a well-established accounting and regulatory mechanism in financial markets. Companies utilize it to improve their financial position and clear their balance sheets of accumulated losses, enabling them to distribute profits in the future and enhancing their investment appeal. This process is subject to strict oversight by regulatory authorities in the Kingdom to safeguard shareholders' rights.
The company confirmed that the completion of the capital reduction remains contingent upon obtaining the necessary regulatory approvals from the Capital Market Authority, in addition to the approval of the company's Extraordinary General Assembly. KEMYA pledged to announce any material developments in this matter as soon as they occur, in accordance with the principles of transparency and disclosure applicable in the Saudi financial market.
