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Saudi Arabia: Project mishaps hamper Saudi loan recovery

Delays in key project finance deals; Few opportunities in contractor financing

Cancellations and delays of project financing deals, and the government’s continued provision of advance payments to contractors, are further hindering recovery in Saudi banks’ loan growth.

A financing of about $8 billion for a 400,000-barrel oil refinery at Yanbu on the Saudi west coast had been expected to close around the end of June, for example. But when US company ConocoPhillips pulled out of the joint venture with national oil company Saudi Aramco at the end of April, it surprised even those close to the deal.

In the first quarter, bank lending grew 1.4% from the previous quarter, following a 1.1% contraction in 2009. In 2007 and 2008 Saudi bank loans grew at 22% and 31% respectively.

"A factor hindering a bank-credit recovery is the project finance pipeline which, although vast in size and scope, is unlikely to yield many large-scale lending prospects for banks until year-end and 2011," says a May report by Banque Saudi Fransi.

If it had closed on time, the Yanbu refinery would have drawn around 15% of its requirements this year, according to a source close to the deal. The Jubail refinery, of a similar size, but on the east coast, has also experienced delays.

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