Saudi Arabia's bourse regulator launched an investigation into Mobily on Monday after the telecoms firm restated a year and a half of its earnings, months before the kingdom is due to open its stock market to direct foreign investment.

The No 2 operator, also called Etihad Etisalat, and 28 per cent owned by the UAE's Etisalat, had been expected to report its third-quarter earnings last week, but asked for its shares to be suspended on Thursday, seeking more time to review unspecified "significant matters" in its accounts.

"The regulator has started investigations to determine any violations by the company towards the bourse rules," the Capital Market Authority (CMA) said in a statement, adding that trading in Mobily's shares would resume on Tuesday.

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

Mobily's surprise move - it cut its 2013 profit by SR740 million ($197.28 million) and profit for the first-half of 2014 by SR688 million 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 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 SR98.25 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 SR79.95 before the company asked for the trading halt.

PROFIT PLUNGE

Mobily on Monday reported a net profit of SR472 million in the three months to September 30, down from SR1.63 billion 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 SR1.67 billion.

Mobily 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 SR207 million for bad debts, slow-moving inventory and goodwill impairments on its investments.

Mobily restated its 2013 net profit as SR5.94 billion, down from SR6.68 billion 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 SR1.61 billion from SR1.4 billion previously, but second-quarter profit fell to SR412 million from SR1.31 billion.

Riyad Capital's 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," he added.

The 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. - Reuters