DUBAI: Saudi Arabia’s No. 2 telecommunications operator Mobily restated a year and a half of earnings due to accounting errors on Monday and posted a shock plunge in profit, months before the kingdom is due to open its stock market to direct foreign investment.

A Reuters survey of a dozen international fund managers early this year found Saudi Arabia ranked highest among the five main Middle Eastern exchanges for full and accurate disclosure of corporate information, and second highest for enforcement of rules against illicit trade.

But Mobily’s surprise move — it cut its 2013 profit by 740 million riyals ($197.28 million, Dh724.5 million) and profit for the first-half of 2014 by 688 million riyals due to what it said were accounting errors — may give potential foreign investors pause for thought as well as riling existing shareholders.

“This may be a temporary glitch as Mobily has actively engaged analysts and the investor community in the past,” said Asim Bukhtiar, head of research at Riyad Capital.

“It might take a couple of quarters to shake off this misstep and the company may need to do some damage control.

Foreign investor sentiment may be affected depending on the root cause for restatement and emergence of more details on the quarterly results.” Mobily, also called Etihad Etisalat, and 28 per cent owned by the United Arab Emirates’ Etisalat, had reported surging profit after it ended Saudi Telecom Co’s (STC) monopoly in 2005.

A record annual profit last year — now amended to be below that of 2012 — helped Mobily’s shares reach an eight-year high of 98.25 riyals in May, but investors became jittery last week after the company failed to report its third-quarter earnings.

Its shares fell 8 per cent in three days to a 16-month low of 79.95 riyals before the company asked for trading to be halted on Thursday.

The stock remained suspended as of 1106 GMT, despite Mobily releasing its delayed earnings before trading began on Monday.

These showed Mobily made a net profit of 472 million riyals in the three months to Sept. 30, down from 1.63 billion riyals in the prior-year period.

Analysts polled by Reuters had on average forecast Mobily, which competes with STC and Zain Saudi, would make a quarterly profit of 1.67 billion riyals.

Mobily, No. 2 operator by subscribers, said the profit drop was because its third-quarter earnings in 2013 were boosted by non-recurring wholesale revenue that was not repeated in the same period of 2014.

Also, depreciation, sales, marketing and general expenses rose year-on-year. These included extra provisions of 207 million riyals for bad debts, slow-moving inventory and goodwill impairments on its investments.

Mobily restated its 2013 net profit as 5.94 billion riyals, down from 6.68 billion riyals previously, due to an error in the timing of booking revenue from a promotional campaign.

This mistake also required Mobily to restate its net profits for the first two quarters of 2014.

It raised its first-quarter profit to 1.61 billion riyals from 1.4 billion riyals previously, but second-quarter profit fell to 412 million riyals from 1.31 billion riyals “Mobily has given some indication as what is going on, but we’re still trying to figure out why the company has changed its accounting standards midyear, normally any changes are flagged up well in advance of the start of the year,” said Riyad Capital’s Bukhtiar.

Bukhtiar said Mobily had hired third-party wholesalers to distribute its mobile top-up cards and would book the revenue from these cards on delivery to the wholesaler even though these had not necessarily yet been bought by customers.

“Investors were wondering when Mobily’s growth would slow down but quarter after quarter the numbers remained very good,” added Bukhtiar.

Saudi’s Capital Market Authority (CMA) said in July it would open the kingdom’s market, the biggest in the Arab world, in the first half of 2015, sparking a stock surge.

Currently, foreigners other than residents of Saudi Arabia and citizens of neighbouring Gulf states can only invest in the market in indirect ways, such as through swaps and exchange-traded funds.