Major financings to be finalised in the kingdom in the coming weeks will highlight the rising cost of borrowing caused by the tightening of the liquidity markets.

Investment group Kingdom Holding and pipe manufacturer Amiantit are to finalise financing packages worth a total of at least SR6bn ($1.6bn).

Local bankers tell MEED they expect the deals to suffer from the increase in interbank lending rates that has hit riyal financing.

Kingdom will finalise a SR3bn deal by early September, which is being arranged by Samba, Saudi Fransi and Riyad Bank. The syndication of the debt to Saudi banks will follow by the end of this year.

Syndication will be limited to five banks, according to one source working on the deal. The size of the Kingdom funding package is still uncertain, with initial reports putting the deal at SR3-5bn. The three advisers are considering signing the deal at the lower end of the range, with the option of increasing its size if market appetite is strong. Kingdom is expected to use the financing to fund further investments in Saudi Arabia (MEED 17:17:08).

Amiantit is also working on a SR3bn corporate loan that will close in the near future. Samba is also acting as financial adviser to Amiantit, and is seeking to appoint about five local banks to join the financing syndicate.

Typical corporate borrowing costs were close to 125 basis points over the Saudi interbank offered rate (Sibor) at the start of the year, but are now closer to 150-175 basis points over Sibor.

“Liquidity comes at a premium now,” says one local banker. “Rising interbank rates will probably add up to 30 basis points to the cost of corporate borrowing.”

The cost of borrowing in the local currency has been rising over the summer because of steps taken by the Saudi Arabian Monetary Authority (Sama), the central bank, to combat inflation by raising reserve requirements for banks. This has reduced local currency liquidity.

At the same time, speculation about a revaluation of the currency has been decreasing as the US dollar has strengthened, which has also drained liquidity from the local banking system.

Saudi Industrial Petrochemicals Company (Sipchem) is also closing the syndication of a $745m facility in early September, which will be used to fund its acetyls project at Jubail.

Earlier this year, Sabb agreed to fund the entire debt, followed by a limited syndication to Sipchem’s core relationship banks (MEED 4:4:08). The syndication is almost complete, with Riyad Bank and Saudi Hollandi returning to the deal. One international bank is also close to committing to the project.

Although the syndication process is only now about to be completed, the first drawdown on the facility has already been made. Margins are expected to be close to 150 basis points over the London interbank offered rate (libor), and the debt will have a tenor of 12 years.

Table: Borrowing costs

Financing deal to be finalised by Kingdom Holding in September SR3-5bn
Borrowing cost over Sibor at the start of 2008 125 basis points
Current likely borrowing cost over Sibor 175 basis points

Sibor = Saudi interbank offered rate
Source: MEED