Saudi Basic Industries Corporation (Sabic) has narrowly avoided a default on the financing for its $12bn Saudi Kayan project after banks agreed to give the company more time to finish building the scheme.

Saudi Kayan, which has gone overbudget and behind schedule, should have been finished and operational by October, according to the loan documentation for the project signed in November 2008.

The long-stop date, the date by which the project must be completed or the banks can say the financing is in default, has now been changed to 31 March 2013, according to sources close to the deal.

“The request to change the long-stop date came to the banks a while ago, but it was only just agreed at the last minute,” says one source involved in the talks. In return for agreeing to change the terms of the deal, lenders to the project asked for the margin on the loans to be increased. Sabic is understood to have refused this request.

“It is very rare that sponsors will agree to reprice a deal, but most banks will be losing money on this given how their own funding costs have changed since 2007,” says another banker involved in the talks with Sabic.

The Saudi Kayan financing was arranged throughout 2007-08, just as the financial crisis was unravelling. Despite this, the sponsors managed to agree a deal for about $2.5bn of bank debt priced at just 50 basis points above the London interbank offered rate (Libor), rising to 75 basis points during the course of the 15-year loans.

Saudi Kayan is expected to report a profit for the first time in the fourth quarter as it finally becomes fully operational. Sabic has a 35 per cent stake in the project and operational control, and took the lead on putting in place $2.4bn needed to fund cost overruns in August 2010.

Sabic did not respond to requests to comment.