'They've done their market sounding and it is clear that this deal will be upsized,' says a banker in Riyadh. 'It will end up over SR 1,000 million ($267 million), easily.'

The deal, which under the capital markets law is an 'exempt offer', is only permitted to be offered to 60 potential investors, though this list has been drawn up following a preliminary market scanning exercise and some level of unofficial commitment will have been established. The law insists on a minimum subscription of SR 1 million ($267,000). However, for commercial reasons SHB has raised the floor to SR 10 million ($2.7 million).

SHB and its major shareholder, ABN Amro, are the joint lead arrangers of the deal which is structured with a tenor of seven years but has five-year optionality. Pricing will be set by the market but any expectations that it will breach the 100-basis point barrier are optimistic. 'This is an economic deal and the transaction does not make sense if the pricing is in triple digits,' says a source close to the deal.

While the booking of seven-year liabilities will bring some room for manoeuvre for those handling the bank balance sheet management, improvements in the asset:liability tenor mismatch profile are not SHB's only incentive for this seminal deal.

'A clear message is being sent to the market: SHB is demonstrating that it has the structuring and marketing capabilities and is prepared to prove the point with its own balance sheet,' says the banker close to the deal. 'The aim will be to pick up some debt capital market mandates on the back of this: it is part of the positioning process.'

The annual general meeting of SHB's shareholders on 2 December approved the subordinated debt issuance and also elected a new board that will serve until the end of 2007. The new arrivals on the board are Lubna al-Olayan, Fahad al-Mubarak and Abdulaziz al-Fahad. Three board members have been re-elected: Sulaiman al-Suhaimin - the chairman, Sulaiman al-Amro and Mohammed al-Noaimi.