Debt defaults at Saad and Al-Gosaibi hit Jubail financing

01 October 2009

International banks cautious over making loans to Saudi Arabia

Several international banks have yet to respond to invitations to finance the $9.6bn Jubail refinery in Saudi Arabia because of internal concerns about their exposures to local family groups that have defaulted on their debt.

Project teams from at least four international banks are having internal problems over making commitments to the project. Several others have had the indicative commitment levels they presented to their internal credit committees, decreased in size.

Considering the minimum commitment size is $50m from each bank, at least $200m of potential commitments could be lacking.

The defaults by Saudi conglomerates Saad Group and Ahmad Hamad al-Gosaibi & Brothers, estimated to effect about $20bn of debts, is making international banks cautious over any further loans the kingdom.

Financial advisers to the Saudi Aramco & Total Refinery & Petrochemical Company (Satorp) have requested that banks respond to the invitation to fund the project by 18 September. Several banks have missed that deadline, but will be allowed to make late submissions.

Aramco is keen to ensure that the margin on the financing is as competitive as possible, according to sources close to the company. It hopes that this project will set a new benchmark pricing level for the Middle East, comparable to the 260 basis points above the London interbank offered rate (Libor) set on the Shuweihat 2 power project in Abu Dhabi.

“Clearly there is a mix of factors at work. Senior management are worried about exposures to Saad and al-Gosaibi, the refinery deal is not expected to pay a very high margin, and there are other Saudi refinery projects on the horizon,” says a banker at one institution that has yet to respond on the Jubail project.

“There has been a bit of knee-jerk response to the Saad and Al-Gosaibi issues from the bank’s management,” says a UAE-based project finance banker.

Despite the issues raised by several banks, the $1.4bn international bank tranche of the debt has managed to receive enough commitments to be oversubscribed. “We know some banks have complained about certain aspects of this deal but it is a well structured project and Aramco is one of the region’s best clients. The deal has attracted some very strong responses already,” says a Satorp source.

The $8.3bn debt includes a $1.4bn international bank tranche and a $1.4bn Saudi bank tranche. Both are now oversubscribed (MEED 25:9:09).

Satorp is being advised by France’s Calyon and its local affiliate Banque Saudi Fransi.

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