Saudi liquidity to benefit borrowers

23 January 2012

Downward pressure on pricing in the local market is likely to continue, making loans even more attractive

In the next few weeks, two Saudi-based corporates will complete loan deals to raise a total of nearly $4bn. Both deals have been financed by the same handful of large local banks on terms that would make corporates in the rest of the world green with envy. One of the deals even has a tenor of 15 years, almost unheard of in the loans market.

It is yet another sign that Saudi borrowers are capitalising on the liquidity in the local banking system and the increasing pressure lenders are under to put their balance sheet to use.

Bankers in Riyadh say other local companies are also in the process of lining up to try to raise huge loans while the rates on offer are so good. Saudi Aramco’s Sadara petrochemicals project, a joint venture with the US’ Dow Chemical, is one of those that will attempt to capitalise on the liquidity in the local banking system by targeting the bulk of the bank debt on the $20bn scheme at local banks. International banks, particularly European ones, are increasingly unable to compete with local lenders.

Although difficult to predict, indications so far are that downward pressure on pricing in the local market will continue, making it even more attractive for Saudi borrowers. This year should be an even busier one for Saudi bankers, in contrast to the rest of the region where loan market activity is generally falling. Across the GCC, 2011 was the slowest year for syndicated loans since 2004. Saudi Arabia is bucking that trend and will continue to do so in 2012.

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