Bankers close to the deal have been saying for some time that talks are under way about structuring the financing for the project on a totally Islamic basis. However, those discussions are believed to have ended in the wake of the recent Islamic tranche of the Saudi Kayan project finance.
That $650m deal, part of a wider $1.8bn funding round, was launched in November and is considered to be pushing the limits of what the market can absorb in terms of Islamic project debt.
A senior project financier in Saudi Arabia who is close to Sabic, says the developers of the Ras al-Zour project realise that a $2bn Islamic project finance deal would go beyond the market’s capabilities. He says Islamic project financing needs another seven years to develop to the stage where it can fund a project of this size.
While Islamic tranches of project debt do bring in a limited number of additional investors, most conventional banks face restrictions on how much Islamic debt they can buy.
This is because, whether Islamic or conventional, the debt is considered to involve exposure to the same creditor, so it comes up against internal limits set by the banks.
The news comes at the same times as a report from ratings agency Standard & Poor’s said that legal uncertainties surrounding the enforceability of creditors’ rights are hindering Islamic project debt from receiving investment-grade ratings (MEED 5:10:07).