Saudi Basic Industries Corporation (Sabic) is in talks with banks to determine how to raise the extra $2.4bn needed to fund costs overruns in the development of the $10bn Saudi Kayan petrochemicals company.

Sabic is taking a lead role in the financing talks because of previous funding agreements, which hamper Kayan’s ability to raise cash itself.

Saudi Kayan is the publically listed company developing the scheme, in which Sabic holds a 35 per cent stake. Project finance loans for the Kayan scheme put restrictions on the ability of the company to get any new loans, especially if they were to the detriment of the existing lenders.

As a result Sabic has raised around $4bn from local sources, part of which will be used to fund the additional cash requirements of the Kayan project.

One banker who worked on the financing for the Kayan project says, “There are several options, Sabic could put in subordinated debt, so they get repaid after the project lenders, or it could put in a shareholder loan or do a second public offering of shares.”

Any additional funding is expected to come predominately from Saudi sources, where the huge liquidity in the banking sector has led many institutions to start offering loans at much lower prices than international banks.

So far Kayan has spent SR35.4bn ($9.4bn) on the development of the project at Jubail. Kayan said in a statement that it was working on “arrangements to obtain financing from one or several banks to cover the increase in costs, and support from the main shareholders”.

In mid-July Saudi Kayan announced that it made a loss of SR5.6m in the first half of the year , down from a loss of SR12.7m in the same period of 2009. It also said that it plans to start commercial operations at 15 of the 16 production units at the Kayan project before the end of 2011.