Saudi Arabia’s Power & Water Utility Company for Jubail & Yanbu (Marafiq) is in the process of trying to raise SR4.5bn ($1.19bn) from local banks to fund its investment plans.

The company has asked banks in Saudi Arabia to give indications by 23 November of how much they can offer the company and at what pricing. It aims to have the bank group in place by the end of December.

The deal has a tenor of 15 years and is the second time that Marafiq has approached local banks for large, long-tenor loans. 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).

That deal was funded by six banks, but at the time several lenders had concerns about such a long-tenor loan when most loans last for just three-five years. This time bankers say pricing will be the key issue. “The last Marafiq deal was priced very low, so everyone is just waiting to see where pricing is set for this transaction,” says one banker in Riyadh.

Marafiq profits
2006 276
2007 189
2008 211
2009 145
2010 473
2011* 221
*=Year to date. Source: Marafiq

Even if pricing is low, Marafiq is expected to attract some large commitments from lenders. In its last deal National Commercial Bank alone provided about 45 per of the total amount.

The deal was launched to the bank market on 17 October and the local Samba is acting as financial adviser, after having also been adviser to the company for the 2010 deal.

The latest transaction is due to be used to fund Marafiq’s capital expenditure plans. It is planning to spend about SR11.5bn on developing new capacity in the power and water sector between 2011-15. The rest of the money to fund its capital expenditure plans will come from internal cash flows.