Firms looking to raise about $6.25 billion to finance projects in Saudi Arabia in the coming months will struggle in a market reeling from a global credit crunch unless Saudi lenders come to their rescue, bankers said.
Saudi Basic Industries (Sabic), Saudi Arabian Mining, and Chevron Phillips Chemical are all seeking cash for projects in the world's top oil exporter at a time when US mortgage defaults have sapped global risk appetite. Companies in the region generally do not comment on debt issues ahead of syndication.
"The litmus test is how much will Saudi [banks] give for each of these projects. That's crucial," a senior banker who declined to be named said. "In today's environment, if you know there's going to limited international bank appetite, you need a big chunk of this cash to come from Saudi," the banker added.
According to sources close to the deals, Sabic affiliate Saudi Kayan Petrochemical plans to raise $2.45 billion from banks in November to help finance the construction of a $10 billion chemical plant. Saudi Arabian Mining (Maaden) is also seeking about $2 billion in the next few weeks for a phosphate venture in which Sabic has a 30% stake, sources said.
Chevron Phillips, operated by Chevron and ConocoPhillips, and Saudi Industrial Investment Group are courting banks to raise $1.8 billion for a petrochemical complex in Saudi Arabia, according to souces. The venture is known as National Chevron Phillips (NCP).
"These projects are obviously going to compete with each other. They're all in the same country and they're similar industries. It's going to be challenging," a senior banker who declined to named said.
Many international banks have not invested in Saudi before, and are unlikely to do so given global credit fears and the country's status as an emerging market, one banker said. Among the international banks which have been active in the region are HSBC, Deutsche Bank and Standard Chartered.
"Banks don't put country limits in place until they expect to start using it, and for a bank that hasn't done that already, they're probably not going to be doing that in this current market," HSBC regional project finance head Darren Davis said.
Two bankers said they expected pricing on the debt would have to top 100 basis points over the London Interbank Offered Rate (Libor) to attract investors. One expected international banks to contribute a maximum of $60 million each per venture.
State-controlled Sabic's connection with both the Saudi Kayan and Maaden projects and its strong relationship with regional banks is likely to make raising cash easier, but NCP may face difficulties, one banker said.
"It's private sector and there's no state involvement... NCP is what everyone's watching, because if that gets done it means the market is pretty much okay," the banker said.
Saudi banks have had limited exposure to global credit turmoil, and are riding a wave of liquidity after a quadrupling of oil prices in the last six years. "It's very likely Saudi banks will supply the money, because they need to build to assets - everybody does, but others have liquidity squeezes," one banker who declined to be named said.
National Commercial Bank, Al-Rajhi Banking & Investment, Samba Financial Group, HSBC affiliate SABB bank and Riyad Bank are among the Saudi lenders that traditionally compete in the project finance market.
Key to securing financing will be the kingdom's appetite for debt that complies with Islamic law, said Joseph Rodriguez, head of specialised finance at Saudi lender Al-Rajhi Banking & Investment. Demand from Muslims for investments that comply with their beliefs means appetite exists, while Islamic banks' growing familiarity with project finance is increasingly unlocking as yet relatively untapped liquidity, he added.
"It's only recently these banks started to invest in alternative assets," said Rodriguez. Islam bans the receipt of interest and loans are often structured as profit sharing, sale, lease or repurchase agreements. - Reuters