Saudi Arabia’s Power & Water Utility Company for Jubail & Yanbu (Marafiq) is set to close a SR4.5bn ($1.2bn) Islamic loan deal in February, according to bankers working on the deal.

The loan will be financed by a group of local banks consisting of National Commercial Bank, Samba, Banque Saudi Fransi, Arab National Bank, Saudi Hollandi and Al-Rajhi.

The deal has a tenor of 15 years and was initially launched to the banks in October. Pricing was set in late November and starts at 70 basis points above the Saudi interbank offered rate (Sibor), rising to 80 basis points above Sibor after five years, then to 95 basis points in the final five years of the loan.

Despite the low pricing, the deal attracted huge interest from lenders, in the latest sign that Saudi banks are struggling to find good-quality assets to deploy their liquidity, which is driving down loan pricing. Several banks offered more than SR2bn, with NCB offering to fund the whole deal itself (MEED 02:12:11:).

“The pricing is a joke, but there is a lot of pressure to use balance sheets, so banks are accepting it,” says one banker in Riyadh. The deal is being arranged by the UK’s HSBC.

Another large loan booked by local banks, a SR10bn ($2.7bn) loan deal for local telecoms firm Etihad-Etisalat (Mobily), is also set to close at about the same time. That deal has a tenor of between five and seven years and pricing starts at 65 basis points for the five-year tranche (MEED 09:12:11). The local Samba is acting as financial adviser to Mobily. Banks funding the Mobily deal include National Commercial Bank, Banque Saudi Fransi, Samba and Riyad Bank.

Bankers in Riyadh say several other large corporate loan deals are being planned for 2012 and will continue to put downward pressure on pricing. “There will be a few more corporates and projects trying to raise these large amounts in 2012, there is already a pipeline starting to build,” says one banker in the kingdom.