UPDATE 1-Saudi Mobily founders can sell shares to foreigners-CEO

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By Souhail Karam

RIYADH, Feb 5 (Reuters) - Founding shareholders of Saudi Arabian mobile telephone operator Etihad Etisalat (7020.SE) (Mobily) will offer to sell 20 percent of the company to local and foreign investors, the company's CEO said on Tuesday.

"They are free to sell to whoever they want," Chief Executive Khaled al-Kaf told Reuters.

Mobily's founders are the UAE's Emirates Telecommunications Corp ETEL.AD, which owns a 35 percent stake.

Six Saudi institutional investors including the state-run Public Pension Agency and the General Organisation for Social Insurance (GOSI) have 45 percent of the firm's shares.

"Of course we want strategic investors, preferably in Saudi Arabia ... But we will not hesitate to look elsewhere depending on price offers and the quality of investors that are bidding," he added.

The sale of the 100 million shares will generate 7.2 billion riyals ($1.92 billion) based on the stock's closing price on Monday. The stock rose 2.8 percent on Tuesday after the announcement of the sale plans.

Once the sale by founding shareholders is completed, the company will raise its capital by 40 percent to 7 billion riyals, it said.

It will issue 200 million new shares at 10 riyals each, with founding shareholders taking 60 percent of the new shares.

"This will inject cash which we want to use in expanding our business in the kingdom," Kaf said.

Mobily, one of two mobile telephone service providers operating in country of 24 million people, started operations in mid-2005. It has since claimed a 40 percent market share.

Its 2007 profit almost doubled to 1.38 billion riyals, from 700 million riyals in 2006, as sales grew 44.3 percent to 8.44 billion riyals.

Mobily and its rival Saudi Telecom Co 7010.SE will face new competition this year when a consortium led by Kuwait's Mobile Telecommunications Co (ZAIN.KW) (Zain) starts operating a a third mobile network in the kingdom.

Local brokerage firm BMG Advisors set a price target of 88.73 riyals for Mobily shares, expecting its earnings per share to reach 3.4 riyals by end-2008, up 21.4 percent from 2007.

Before Mobily announced its earnings last month, Global Investment House set a price target of 76.8 riyals on its shares and National Bank of Kuwait's price target was 76 riyals. (Editing by Paul Bolding)