Saudi Arabia’s Power & Water Utility Company for Jubail & Yanbu (Marafiq) has received a huge oversubscription for its SR4.5bn ($1.19bn) loan deal in a sign that local banks still have more liquidity than they can deploy.

At least three banks have offered commitments of more than 60 per cent of what Marafiq is trying to raise. One of those, National Commercial Bank, has offered to fund the entire deal itself.

Banks are offering such large commitments to the deal in the expectation that they will be scaled back later. “We had to offer a large amount to Marafiq because everyone is going to,” says one banker involved in the deal. “We do it in the expectation that deals these days will be oversubscribed and the lenders will have to be scaled back.”

Banks were given until 29 November to give indications of how much they want to contribute to the deal, which will have a tenor of 15 years. In August 2010, the utility completed a SR2.5bn 15 year loan, priced at just 85 basis points above the Saudi interbank offered rate (Sibor) (MEED 1:8:11).

Marafiq capex plans
 (SRm)
2011 3,655
2012 3,676
2013 2,519
2014 1,093
2015 550
Capex=Capital expenditure; f=Forecast. Source: Marafiq

At the time many bankers in the kingdom complained at the low pricing and long tenor on that deal. Now they are all competing to lend on the new transaction. “There is massive pressure to book good quality assets and Marafiq will benefit from that,” says a banker in Riyadh.

The new deal is expected to be priced slightly lower than the 2010 transaction as a result of the even stronger response it is receiving from banks. The deal is being arranged by the UK’s HSBC.

Proceeds from the deal will be used to fund the company’s capital expenditure plans. Marafiq is planning to spend SR11.5bn on expanding its power and water production capacity between 2011-2015 (MEED 18:11:11).