Banks unlikely to finance Saudi Telecom

24 February 2010

Local institutions request stronger guarantee

Banks in Saudi Arabia say they are unlikely to finance a SR2.25bn ($600m) loan launched by Saudi Telecom Company to help fund the expansion of its subsidiary in Indonesia.

Local banks are unwilling the fund the deal without a stronger guarantee from Saudi Telecom.

When the deal was launched in early January it was backed by a “letter of comfort” from Saudi Telecom, used to assure the banks of the ability of Indonesian subsidiary Natrindo Telepon Seluler to service the debt.

However, bankers in Saudi say a more formal repayment guarantee from Saudi Telecom could be required to get them to fund the deal.

“With a stronger guarantee from Saudi Telecom, there should be no problem funding this deal,” says one Saudi banker.

The Saudi banks are also concerned about making loans to Indonesia, a market they are not familiar with, and also about having exposure to the already saturated mobile phone market there.

Banks have also said the pricing on the deal, at about 3 per cent, was not high enough to compensate them for the risks associated with the loan.

The financing is being arranged by the UK’s HSBC and has a tenor of seven-and-a-half-years (MEED 13:1:10).

Saudi Telecom did not respond to requests to comment.

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