Saudi Arabia’s Mobily Suspends CEO After Accounting Error

Etihad Etisalat Co., the Saudi Arabian phone operator known as Mobily, suspended its chief executive officer after auditing errors prompted a stock market sell-off that erased about $5 billion of its market value.

The suspension of Khalid Omar Al Kaf took effect from Nov. 21 and will last until the audit committee submits a report to the board, the company said in a statement to the Saudi stock market yesterday. Deputy CEO Serkan Okandan will take over as the committee seeks to identify responsibility for the mistakes in the company’s accounts, according to the statement.

Mobily, whose biggest shareholder is Abu Dhabi-based Emirates Telecommunications Corp., said on Nov. 3 that an error in the timing of revenue recognition from a promotional program affected financial statements for 2013 and the first half. Mistakes related to the leasing of its fiber-optic communication network also impacted results in the six months through June.

The disclosure prompted the Saudi market regulator to start a probe to determine if Mobily violated rules and led the company’s market value to plummet to 43.2 billion riyals ($11.5 billion) last week from 61.6 billion riyals at the start of the month. Etisalat, as its largest shareholder is known, yesterday called for an independent investigation to identify what had happened at Mobily, it said in a statement.

The shares swung between gains and losses for a second day, declining 0.1 percent to 56 riyals as of 11:16 a.m. in Riyadh. They’ve plummeted about 30 percent this month.

Biggest Shareholder

Okandan is also the chief financial officer at Etisalat. Mobily’s restated profits will be reflected in Etisalat’s fourth-quarter financial results, the company said Nov. 5.

“As a major shareholder Etisalat wants to make sure it has some influence over cleaning things up, although ultimately I see this as a temporary management change before a new CEO is found,” Asim Bukhtiar, vice president and head of research at Riyad Capital, said by phone. “It is hard to say how long this will take for the company to get over but at least the share price now seems to be stabilizing around 56 riyals.”

Mobily’s third-quarter profit dropped more than 70 percent, missing analyst estimates. The company said on Nov. 6 that it won’t pay a dividend for the third-quarter.

“The company has taken a decision here and it should give investors confidence that any error like this will be dealt with,” Tariq Qaqish, head of asset management at Dubai-based Al Mal Capital PSC, said today by phone. “This is a good sign for investors that the company is committed to transparency and corporate governance.”