Saudi project finance market set to reach $30bn

17 February 2010

Two refineries and Maaden smelter to finalise loans in 2010

Saudi Arabia could complete project finance deals worth about $30bn in 2010, according to calculations by MEED – well above the total of about $20bn completed in the whole region in 2009.

The figure is based on a small number of large projects which are likely to reach financial close over the course of the year, including the Jubail and Yanbu refineries planned by Saudi Aramco and an aluminium smelter being developed by Saudi Arabian Mining Company (Maaden).

The resurgence in activity follows a difficult year in 2009, when projects such as the Ras al-Zour independent water and power project (IWPP) were switched to government procurement contracts because of financing issues. Only about $5.4bn of project finance deals were completed in the kingdom in 2009.

The two refinery projects alone need to raise about $20bn in total.

The first of these, the Jubail refinery, is expected to reach financial close by the end of the first quarter. The second, a joint venture with the US’ ConocoPhillips is currently seeking financing offers from banks.

Most project financing in 2010 is expected to be provided by local banks.

“There is a lot of liquidity in the Saudi banking system and a huge pipeline of projects, so 2010 looks like being a very active year,” says a Saudi banker.

A further factor is the caution of international banks, which are wary about lending to Saudi companies following defaults on about $20bn debt by two local conglomerates, the Saad Group and AH al-Gosaibi & Brothers Company.

A settlement with Saudi banks has already been reached on a large portion of that debt.

Despite the potential, some bankers say sponsors will have difficulty getting all the hoped-for project finance.

“There is liquidity in the banks for a lot more activity than in 2009, but I think that once a few deals are done, banks will then start to become a bit more cautious about booking more assets,” says another banker based in the kingdom.

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