Gulf International Bank (GIB) and four other banks including Chase Manhattan of the US have won the mandate to raise a $500 million, 10-year loan for the Ghazlan power project in Saudi Arabia.

The borrower, state-controlled Saudi Consolidated Electric Company for the Eastern Province (SCECO-East), announced the success of the group’s bid on 20 July.

The loan will be used to part-finance a $1,500 million expansion of the Ghazlan power station, to be carried out by Mitsubishi Heavy Industries of Japan (see Saudi Arabia).

The loan is being arranged by GIB and underwritten by two Chase Manhattan subsidiaries and three Saudi banks Al-Bank Al-Saudi Al-Fransi, National Commercial Bank and Saudi British Bank. A banking source close to the transaction says the group is likely to open a general syndication for the loan in September, once the hottest part of the Gulf summer is over.

The loan is priced at 90 basis points over the six-month London interbank offered rate (Libor). This compares to the 124 basis points over Libor that Saudi Petrochemical Company (Sadaf) is paying for a $700 million, eight-and-a-half-year loan signed in November 1995. GIB arranged that loan and Chase Manhattan was an underwriter.

SCECO-East makes losses year-on-year because electricity prices are pegged at a low level by the government, but bankers say the borrower is nonetheless regarded as a good risk because its customers include the kingdom’s two biggest industrial concerns, oil producer Saudi Aramco and petrochemicals producer Saudi Basic Industries Corporation (Sabic).

Following the precedent set by the Sadaf loan, the facility will come under English rather than Saudi law. The bank source said this reflected the desire of the borrowers to attract international funds rather than relying exclusively on local banks. ‘Not many international banks understand Saudi law,’ he said.