Saudi Arabia is unlikely to have any difficulties raising $4,330 million through a syndicated loan even though the interest margin is quite low, bankers say, because lenders are keen to keep in the kingdom's good books. The pricing of the seven-year loan is by far the lowest achieved by any Middle East borrower and around the same level as for loans to Greece, a member of the EU. The loan, which is expected to be finalised in the last two weeks of November, will be used to pay for new Boeing aircraft for the state-owned Saudi Arabian Airlines (MEED 14:11:97).

The pricing of the loan, the country's first for six years, is 18.5 basis points (bp) over Libor for the first three years, 22.5 bp over Libor for the next two and 24.5 bp over Libor for the final two. Saudi Arabia is in good financial condition at the moment and the government is risk-weighted at zero under the Basle credit criteria.

Even so, bankers say the loan is quite tightly priced, given that banks have finite credit allocations for Saudi Arabia and there are more lucrative opportunities available, such as lending to the country's petrochemicals projects (see In Brief).

However, banks are expected to take part in the loan for fear of losing other kinds of business in Saudi Arabia, such as managing the vast cash deposits and investments of Saudi institutions and private investors. 'The pricing was on the aggressive side for the region, but I'm confident that sufficient banks will feel compelled to have to do it, as they did in 1991,' says one Western banker familiar with the deal. 'It's really a political decision for banks.'

The loan is likely to be paid off well before the seven-year maturity. It is being co-ordinated by JP Morgan of the US, which arranged Saudi Arabia's last sovereign borrowing in 1991. The actual borrowing will be through a special-purpose vehicle guaranteed by the Saudi government. The airline cannot raise the money itself because it runs at a loss.

Four other banks are senior lead managers: Chase Manhattan Bank, Gulf International Bank, National Commercial Bank and Saudi American Bank. Each of these five banks will commit $200 million to the loan, and a group of between 20 and 30 other banks have been asked to lend $175 million each. These banks have been asked to reply by 18 November and the loan should be finalised the following week. The first aircraft are due to be delivered in December. The reason for the large size of the loan seems to be that Saudi Arabia does not want to have to go back to the banks again to raise more money for the aircraft purchase, bankers say, though a smaller loan in 1999 is possible.