Several banks have told MEED they will not participate in the KD3bn ($9.98bn) syndicated loan sought by the Kuwait National Petroleum Company (KNPC) due to the low pricing.

The mandated lead arrangers include National Bank of Kuwait (NBK) and Kuwait Finance House, on the Kuwaiti dinar and Islamic finance tranches respectively.

They are set to officially begin syndication on the KD1.5bn commercial tranches in March, which will have a sovereign guarantee.

Some banks already declined to participate during informal bookbuilding as KNPC aimed to price the loan at 100 basis points over Kuwait interbank overnight rates for a ten-year tenor.

The US dollar tranche is expected to be priced higher, but still aggressively.

Concerns over tighter liquidity are pushing up interbank rates across the GCC, with overnight rates in Kuwait at 0.69 per cent and one-year interbank rates reaching 2.25 per cent, according to Central Bank figures from 14 March. This compares to one-year ask rates of 1.56 per cent in mid-March 2015.

This would put KNPC’s cost of borrowing below interbank rates, leaving no profit margin for banks.

Some banks would be willing to reconsider if slightly higher pricing or a shorter tenor could be negotiated.

When contacted by MEED, Kuwait Petroleum Corporation, the parent company of KNPC, disputed the accuracy of the story but did not elaborate further.

KNPC is still expected to secure enough commitments from banks to raise the full $10bn, thanks to its very low-risk profile. The syndication is due to finish as early as the first week of April, KNPC has told the Kuwait News Agency.

The loan is to finance the KD4bn Clean Fuels refinery upgrade project.

KNPC will contribute KD1bn in equity. This has been used to start work on the project, for which contracts were awarded in mid-2014.

Korea Export Import Bank (Kexim) and Japan Bank for International Cooperation (Jbic) will lend to KNPC as part of an export credit agency (ECA) tranche, as well as ECAs from Britain, Italy and the Netherlands. This is expected to total KD1.5bn, or half the debt, but will depend on banking sector appetite.

UK-based HSBC is advising on the ECA tranche.

KNPC signed a memorandum of understanding with Kexim for $5bn of finance for oil projects in October 2015. Some of the lending will be allocated to future projects awarded to South Korean contractors.

The packages and contractors on the refinery are:

• Mina Abdullah package one, valued at $3.8bn, to a joint venture of Petrofac (UK), Samsung Engineering (South Korea) and CB&I Lummus (US). Petrofac’s share of the contract is estimated as $1.7bn;
• Mina Abdullah package two, valued at $3.4bn, to a joint venture of Daewoo Engineering & Construction (South Korea), Hyundai Heavy Industries (South Korea), and Fluor (US);
• The $4.8bn Mina al-Ahmadi package to a joint venture of GS Engineering & Construction (South Korea), SK Engineering & Construction (South Korea), and JGC Corporation (Japan).

The project is scheduled for completion in 2018.