Saudi Arabia closed around $15bn of project financings in June, finally bringing two large schemes, including one of the largest ever deals in the Middle East, to a conclusion after nearly a year of work.

The scale of the financing closed during the month is expected to continue into the third quarter of 2010. With several more large schemes scheduled for close before Ramadan, as much of $26bn of financing could be completed in the kingdom during the three months to mid-August.

The projects financed in June include the $12.8bn Jubail refinery scheme, which was first launched to banks in June 2009 and is one of the biggest financings ever completed in the Middle East. Financiers have been working on the second project, the $2.1bn PP11 independent power scheme since September 2009.

The two deals bring to an end a slow period for project finance in the region, with no other deals completed in the rest of GCC so far in 2010.

Financing on the Jubail project, sponsored by state-energy giant Saudi Aramco and France’s Total, is split 60:40 between debt and equity. The two sponsors are contributing $1bn in debt to the project, which is expected to be repaid by a local currency sukuk to be issued later in the year.

The project also features local banks funding export credit agency (ECA) insured loans in riyals for the first time in the Saudi market. Usually ECA covered loans are only funded in dollars.

There is so much liquidity in Saudi banks and they are keen to book assets that every deal is oversubscribed

Local banker

The Korean Export-Import Bank (Kexim) and Korea Export Insurance Corporation (Keic) covered loans had to be offered to Saudi banks to fund in local currency because of difficulties getting international banks to fund them, sources close to the financing say.

In total Saudi banks are lending the project around $2bn, split between their dollar commitments, riyal loans, and riyal denominated loans to ECA covered facilities. International banks are only providing $1.5bn.

Pricing on the international bank tranche starts at just 150 basis points above the London interbank offered rate (Libor) while the riyal loans are understood to be priced at under 100 basis points above the Saudi interbank offered rate (Sibor).

Meanwhile, the PP11 deal to fund a power project being developed in Riyadh, was finally signed on 15 June, several months after France’s GDF Suez was named as the preferred bidder on the project, despite all the bids for the project having fully committed funding.

A number of other Saudi schemes are on track to reach financial close in the coming weeks. Saudi Arabian Mining Company (Maaden) informed banks of the pricing it will pay on the loans to fund its $10.8bn aluminium smelter scheme in the kingdom, and is waiting for banks to respond with how much they would like to commit to the project.

A $670m, 15-year loan for Power & Water Utility Company for Jubail & Yanbu (Marafiq) is due to close in July. Several other smaller deals in the metals and mining sector are also currently being worked on.

The boom in project finance comes at a time when Saudi banks are desperate to sign new loans to make up for disappointing profit growth in 2009.

 “There is so much liquidity in the Saudi banks and they are so keen to book assets, that every deal is being oversubscribed,” says one local banker.

Another local banker says; “There has been a lot of work going on behind the scenes for a long time, and now we are starting to see a lot of deals being completed all at around the same time.”

2011 also looks like being a busy year for financing projects in Saudi Arabia, although that will partly depend on the fate of a second $10bn Aramco refinery project at Yanbu. The future of the project is uncertain following the decision by US-based ConocoPhillips to walk away from the scheme in April.