Saudi Aramco and the US’ Dow Chemicals are targeting pricing on the bank debt of the $20bn Sadara Chemical Company project at rates banks say will be unobtainable.

The two sponsors are looking for about $2.7bn in bank loans for the project, and have begun telling potential lenders that their price target is 35 basis points above the London interbank offered rate, rising to 65 basis points over the life of the 16-year debt.

Bankers who have been invited to fund the deal have said they are shocked at how low the pricing expectations are. “We know Aramco wants the lowest pricing, but this is much lower than we were expecting,” says a source at one international bank.

Other bankers say the pricing indicated so far is expected to be a starting point for negotiations, rather than what the deal is likely to actually be priced at. “What is likely to happen is that the Saudi banks will do a deal close to that level in riyals, and the dollar tranche will be priced slightly higher,” says a project finance banker at an international bank. That would allow Sadara to capitalise on the local bank liquidity, while also attracting some additional international bank commitments.

In mid-June, the sponsors behind the project and their advisers, Royal Bank of Scotland and Riyad Bank, met potential lenders on the deal in Zurich, Dhahran and Dubai.

The deal is expected to require $12.4bn of debt, broken down between the bank loans, $6.5bn from export credit agencies, $1.4bn from a sukuk (Islamic bond) issue, $1.3bn from the local Public Investment Fund, and $530m from the Saudi Industrial Development Fund. In early May four banks were appointed to lead a Saudi riyal sukuk issue, and although an additional international bond is understood to still be under consideration, Aramco is not expected to go ahead with the issue.