Saudi Aramco and Total's $12 billion Jubail refinery deal (Satorp) has received a lukewarm reception from project banks. Both sponsors were engaged in one-on-one talks with prospective lenders in London and Paris late July, following the release on 9 July of the request for proposals (RFP) for an $8.3 billion financing. Calyon and Saudi Fransi are financial advisers.

The deadline for responses to the RFP has been pushed back from 9 September to 18 September. The deal is a large and testing credit given the bullish market projections in the model and the refinery margin risk banks are being asked to shoulder.

The 400,000 barrels per day project is fed by crude at market prices, so banks are being asked to take a view on crude prices and projected prices for the refined products at a time when refinery margins have turned negative or near-zero. The refinery will produce diesel and jet fuels, and 700,000 tons per year (t/y) of paraxylene, 140,000 t/y of benzene and 200,000 t/y of polymer-grade propylene.

The closest comparator for the deal is Aramco and Sumitomo Chemicals' $9.9 billion PetroRabigh project which reached financial close in March 2006. Compared with PetroRabigh, Jubail is more exposed to refinery margin risk given that it has a lower petrochemical content – around 5% compared with Rabigh's 15%.

There are also concerns about how the deal is engineered and the model pricing. Pricing in the RFP is described as "24 months out of date". It starts at 60bp rising to 80bp, with fees for the biggest ticket at 75bp.

The plan includes a $1.4 billion international tranche and a $1.4 billion Islamic tranche, both with 16 year tenors. Ticket sizes range from $50 million to $200 million for uncovered debt, but banks in the international tranche are obliged to fund the ECA facilities up to 2.4x their uncovered ticket. Therefore, for the biggest $200 million ticket, banks would be committing a huge $680 million to the deal and be expected to syndicate some of the debt.

Around $3.3 billion of the financing will be met by ECA facilities via a combination of JBIC, KEIC, Sace, Coface and, unusually, Spain's Cesce. Given that there is no Japanese equity in the deal there is no direct loan from JBIC – unlike PetroRabigh, which benefited from a $2.5 billion OIL. The sponsors need just seven international banks to commit to the biggest ticket to meet their funding requirement for the international and ECA tranches, but this may be wishful thinking in the current climate. The Saudi banks cannot commit to ECA facilities, so there is no provision for lender diversity within the model.

Some international banks would be better able to commit if the sweet/sour ratio between ECA-covered and uncovered debt was reduced from 3.4:1 to around 1:1 because banks still have to service some ECA-covered loans with regulatory capital. Banks have different internal views on the regulatory capital required to service ECA-covered lending (banks' weighting tends to vary by how quickly a given agency will pay up under their policy, and whether the insurance is defined as a direct sovereign guarantee).

A bigger issue is bank capacity for some agency cover. Several international banks are thought to be close to their internal limits for Korean covered-debt, given the huge ramp up in activity by the Korean agencies in the Middle East in the last two years. And at least one major project lender is also close to its internal limits for Sace exposure.

The mix of ECAs has yet to be decided, which impairs banks' ability to commit. Several market participants have criticized this financial modeling – since banks have different exposures and appetites for different ECA facilities, liquidity could have been optimized by allowing lenders to bid separately on uncovered and individual ECA facilities. Banks are also put off by the shorter tenor of the ECA facilities – around 14 years compared to 16 years door-to-door for the uncovered tranches.

Of the non-bank debt providers PIF is to provide $1.3 billion and SIDF $530 million – although their joint contribution could be upsized to around $2 billion. There is also a 144a bond component of $650 million, but given that there has never been a Middle East refinery issuance, this may be too ambitious and it would be unsurprising if it were dropped.

In the project's favour, the sponsors, Aramco and Total, are at the pinnacle of credit strength and are providing completion guarantees. Lenders are not exposed to volume risk – because the output is taken by both sponsors – and the model has a healthy ADSCR of 2.2x. Lenders can also take comfort from the fact that the refinery will be one of the most technologically advanced in the world and they have a de facto market maker in Aramco as a sponsor.

However, despite both sponsors' stature, there is no direct credit support during operation, with a sponsor debt service undertaking only after payments have been accelerated. Also, one source has questioned the lack of an additional indebtedness provision which could erode the upfront debt service ratios.

The pricing will increase substantially from the model to around 300bp or more (most banks are expecting a margin above the recent Dolphin refinancing). It is a moot point, given the lack of sponsor credit support during operation, whether the deal will get away with increased pricing or whether the structuring will need changing. The credit position could be improved by reducing leverage or subordinating the fuel cost to debt service or allowing deferred fuel payments.

If international banks shun the engineering and fund the ECA facilities on a 1:1 ratio and the bond is dropped, then the $1.5 billion-plus funding gap will probably be filled by a sponsor loan.

Sponsors are still doing the rounds with banks, and have considerable pull. The relative strength of the French banks allied to the pressure applied by Total could see the big three of Calyon (also financial adviser), SG and BNP Paribas weigh in with big tickets.

Aramco and Total will hope to capitalise on the momentum of the probable Shuweihat 2 long-term financing and the Dolphin refinancing success. And as one banker says: "if you won't support an Aramco-Total refinery, you won't support any refinery." The deal's success in its current form appears to be a test of relationships over underlying credit strength.