The Saudi Arabian government will inject a five billion riyal ($1.33 billion) loan to launch the construction of its King Abdullah Economic City project, a 168-square-kilometre development on the Red Sea north of Jeddah.
The project, a publicly-listed joint venture from Emaar Economic City (Emaar EC), brings together Saudi investors and the Dubai-based developer Emaar. It is the largest private-sector development in the Kingdom.
The loan is expected to boost development activity in the city after a sluggish 2010, analysts at Deutsche Bank said in a note to clients.
The Kingdom had recently announced plans to bolster its construction industry by generating nearly $450 billion in construction contracts in the next five years, according to data released at the Arabian World Construction Summit in Abu Dhabi.
Saudi Arabia, the largest economy of the GCC, has an annual GDP of $622 billion, and a GDP per capita of $24,200.
The King Abdullah Economic City development will include plans for an 800-hectare industrial sector, a new port, office towers, resorts and a residential area for 2 million people.
The Saudi ministry of finance is giving Emaar EC 10 years to repay the loan, with repayment starting after three years.
“Emaar EC has provided guarantees to the loan by collateralizing 24.7 million square meters of land. Repayments are to be made through returns from the project,” Emaar said in a statement.
Deutsche analysts have said that the size of the loan exactly matches the Deutsche Bank’s estimates of Emaar Economic City’s need for capital and operating funds in 2011 to 2012.
The Saudi government’s support for the project is a much-needed boost for the development to continue. High infrastructure costs and slow home sales had reduced the developer’s cash reserves to 339 million riyals in 2010 from 2.2 billion riyals in 2008, Deutsche bank said.
The cash will help the developer finish basic infrastructure for the project and pay contractors, said John Harris, the co-head of the Saudi Arabia office of the property services company Jones Lang LaSalle told The National.
"I think this is definitely positive news for the development," Mr. Harris said.