Saudi Arabia is planning a $4,500 million sovereign loan, its first foreign borrowing for six years, bankers in the Gulf and London say. The loan, which would be used to help pay for new Boeing aircraft for the state-owned Saudi Arabian Airlines, is expected to come to the market by the end of this year.

Details of the loan had not been publicly announced as MEED went to press, but bankers say the government's plans are at an advanced stage. The loan would be the first international borrowing by Saudi Arabia since May 1991, when the government took out a $4,500 million loan to cover cash flow problems caused by the costs of the Gulf war (MEED 24:5:91, Cover Story).

One banking source says that the sovereign loan is expected to be for seven years, with an 'extremely cheap' interest rate that could be as low as 20-25 basis points over Libor. Saudi Arabia has been reluctant in the past to offer sovereign guarantees to foreign lenders: if the loan goes ahead, it implies that the government has had a change of heart, bankers say. Four banks are said to be involved, including one Saudi institution.

Saudi Arabian Airlines ordered 61 commercial aircraft in 1995 from The Boeing Company and from McDonnell Douglas Corporation, a US aircraft manufacturer which has since merged with Boeing. Bankers say that the airline would not be able to raise the $7,000 million cost of the aircraft from banks without government guarantees because it runs at a loss due to heavy subsidies on domestic fares. The first of the aircraft were due to arrive in June or July of this year but none have so far been delivered. Boeing has declined to comment on whether the delay is due to financing problems (see Feature).