Banks respond to Marafiq $667m loan

03 June 2010

Long tenor deal expected to be oversubscribed

Banks in Saudi Arabia have responded to requests by Power & Water Utility Company for Jubail & Yanbu (Marafiq) to provide loans of SR2.5bn ($667m) and the deal is expected to be oversubscribed.

Sources close to the deal say that Marafiq and financial adviser Samba will meet on 1 July to assess the responses and begin working on what margin they will pay the lenders.

The deal, which has a 15-year tenor, has received a mixed response from the Saudi banks. Some, with close links to Marafiq’s owners, including Saudi Aramco and Saudi Arabian Basic Industries Corporation (Sabic), see the deal as a hybrid between project finance and corporate lending.

Other banks say the deal is a return to ‘name lending’, the discredited practise that involves banks lending based on the strength of a clients reputation, rather than detailed due diligence.

However, with Saudi banks keen to book new assets and the government-related ownership of Marafiq, bankers say a significant oversubscription is expected.

Pricing is expected to be a difficult issue to settle though, with banks saying responses to the deal are based on pricing ranging from 140 basis points above the Saudi interbank offered rate (Sibor) and under, to well over 200 basis points above Sibor.

Responses to the financing proposal were due to be received by 22 May, but that deadline was delayed to give banks more time to respond to the deal. At least one bank is understood to have contacted Marafiq to say it will miss the new 30 May deadline.

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