Saudi Aramco has started negotiating with lenders over financing of the $9.6bn Jubail refinery.

Saudi Aramco & Total Refining & Petrochemical Company (Satorp), the joint venture company developing the project, has given initial pricing guidance of under 100 basis points above the Saudi interbank offered rate (Sibor) for the $1.4bn Saudi riyal tranche.

This will increase after three years to about 150 basis points above Sibor. Talks with the Saudi banks began in mid-November and international banks were contacted soon afterwards.

Bankers are shocked at how low the suggested interest rate on the deal is, even though it was clear that the sponsors were keen to set a new pricing benchmark for the region. “Pricing on this has been even more aggressive than we expected,” says one Saudi banker.

“There are still negotiations about pricing and commitment levels going on so it has not settled at any level yet, but the starting point is very low,” says another project financier at a bank in Saudi Arabia.

International banks have been offered slightly higher pricing levels than Saudi banks to reflect the higher cost of liquidity for international banks.

Despite the low pricing levels, several Saudi banks have confirmed their commitments to the riyal tranche of the project debt. When the deadline for financing offers was reached on 18 September, the Saudi bank tranche was significantly oversubscribed. The international bank tranche had also managed to receive more enough financing offers.

The $8.3bn debt for the project is split into a $1.4bn international bank tranche, a $1.4bn Saudi bank tranche, and a $2.2bn guaranteed loan from an undisclosed export credit agency. There is also $3.3bn in loans from the Saudi Industrial Development Fund and the Public Investment Fund.

Satorp is keen to complete the financing before the end of 2009.