Building a plan usually includes variables the planner can control and others not. He can only interact with the latter variables in an attempt to mitigate their impact. Among the variables that are controllable by the investor is the capital structure, which usually affects the lending price, the lender's view toward it and the company's future. It is known that a company's capability to realize profit depends on its capability to build a correct financial structure. If borrowing goes beyond certain limits, it could lead to sustained incurring of losses and even bankruptcy. At the same time, borrowing supports and enables profitability to grow, if there is no extravagance. Investors' suffering due to Zain Saudi Arabia is basically attributed to purchasing its license at about SR23 billion and building its network needs about SR3 billion, knowing that it also requires other expenses to start its business operation. This necessitated injecting additional amount besides operational costs as well as incurring losses at a time when it needed to save money to reduce borrowing. Under the above situation, Zain used 50 percent as a goal, as it borrowed 50 percent and issued shares to the founders and new owners comprising 50 percent (SR14 billion). But with the passage of time and according to the table below, we will see that the loan percentage in the company started growing and rose until it reached 80.19 percent, according to mid-2011 results. With it, ownership rights receded to reach 80.19 as a result of erosion of shareholders' rights due to losses realized by the company while carrying out its activities. So despite the growth in activity and improvement of the company's profitability, the financial burdens swallowed all the capabilities and improvement. Despite the commissions, as a percentage of revenues, were decreasing, their volume still affected the company's ability to achieve profits. Furthermore, the company has a long way to go due to erosion of its capital and its entering the danger zone. The company recently responded to two decisions to decrease capital so as to absorb the losses and then improve the company's ability to distribute profits in thefuture, if they are achieved. Then it carried out an important step - to increase capital through which it would be able to reduce its debts and in turn push the company toward profitability. The company's analyses and presentations in its annual reports indicate that it has exceeded expectations. It is the uncontrollable variable by the company in return for a variable capital structure under control. Supposedly, building the structure on the basis of expected results and variables will make the company overcome all the obstacles facing it. We might excuse the company if the forecasts and plans are achieved in a way less than the reality. This would lead to the occurrence of a defect and inability to continue and think on finding other solutions. Perhaps the founders' wish to maintain concentration of ownership through less shares explains this trend toward borrowing and resorting to temporary sources of financing. However, this should not take place at the expense of investors and exposing them to risks through reducing the capital and resorting to borrowing. The situation has pushed the company to pay big commissions, hence leading it to incur losses. If the opposite had occurred and the suitable structure had been chosen, then the company would have been in a better position. It would have achieved profits like the other companies that accorded attention to this dimension. If Zain had grabbed the opportunity from the very start, created sufficient capital and circulated the right number of shares, it would have avoided the measures it has been forced to take and it would have realized profits within a shorter period than what would have been achieved within a longer period. The variable under control was the cause of the situation the company is passing through. Added to this is the large license fee it had to pay (and this was a variable beyond its control). Capital efficiency is an important dimension for carrying out its activities and achieving profits. However, going beyond bounds in borrowing, negatively affects the company's ability to continue. In the separation between management and ownership, it is usually assumed that investors would be protected from entering a dark tunnel. Usually, we ought to take the right decision about what we have in hand. We should not leave any chance to be in a predicament that affects our continuity and, as a result, affects the founder and investor. – Translated article by Dr. Yassin Al-Jifri published in Al
