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Capital Markets

Saudi Arabia: Riyal funding drives rapid progress in projects

Delayed aluminium and petrochemicals mega-projects move forward; Few alternatives for local lenders

Key Saudi project financings are rapidly moving ahead after long delays. This is largely because local banks are desperate to deploy riyal funding in more profitable ways as the benchmark interest rate remains at just 2% and there is a lack of lending opportunities outside project finance. With the riyal pegged to the dollar, interest rates are low despite local housing shortages and global food prices pushing Saudi inflation to a 17-month high this summer at 6%.

The country’s biggest lender, unlisted National Commercial Bank (NCB), has alone committed a local-currency equivalent of $700 million for the $8 billion Ma’aden aluminium project, according to sources close to the deal. In mid-August NCB further provided a SAR4.5 billion ($1.2 billion) seven-year loan to Saudi Kayan, a project owned by national petrochemicals firm Sabic. The loan will help Kayan overcome cost increases in its construction stage.

Saudi banks’ loan-to-deposit ratios averaged 80.8% in July, down from more than 90% two years earlier. NCB’s loan-to-deposit ratio is 57%. Euromoney understands Ma’aden has bypassed relatively expensive export credit agency funding from France’s Coface, thanks to the abundance of riyal liquidity. Export credit agencies had been key facilitators in Saudi project finance in the wake of the crisis.

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