Chase Manhattan Corp. has arranged a $1.94 billion loan for Saudi Arabia that will finance sales of U.S. aircraft to the Middle East nation.
Chase itself will not participate in the loan, which is guaranteed by the Export-Import Bank of the United States. About half the amount, or $1.04 billion, is being loaned by London-based National Westminster Bank PLC and Paris-based Societe Generale. The rest, $903 million, is being provided by Private Export Funding Corp., a joint venture of U.S. banks and large exporting companies. Among the venture's shareholders are Mellon Bank Corp., Bank of America Corp., Bank of New York Co., Citigroup Inc., Chase, General Electric Co., and United Technologies Corp.
The 12-year loan carries little risk because it is guaranteed by the U.S. Export-Import Bank, a government agency that promotes U.S. exports. It is the largest loan ever backed by the bank. But the yield is miniscule - just 5 basis points above the London interbank offered rate.
Saudi Arabia intends to use the loan to buy 22 McDonnell Douglas MD-90s, 11 Boeing 777-200s, and two Boeing 747-400s.
Homi Mullan, regional executive for Europe, the Middle East, and Africa at Chase in London, said the financing was part of an ongoing effort to build fee-based businesses and extend the range of services that Chase offers to its corporate customers internationally.
In the year that ended Sept. 30, Chase was the biggest user of Export-Import Bank guarantees for loans made by banks, followed by Citigroup and Bank of America. Boeing is one of Chase's biggest corporate customers. In several similar recent transactions, Chase arranged $300 million in Export-Import Bank-backed loans for a road project in Croatia, in which Bechtel Group Inc. is the principal contractor, and another $94 million loan, also for Croatia, to buy radar systems from Lockheed Martin Corp.
The bank has a second mandate from Saudi Arabia to arrange an additional $662.5 million to buy more aircraft.
Bank demand for Export-Import Bank guarantees, which cover commercial and political risk, has increased over the last few years in response to financial turmoil in Asia, Latin America, and other regions.
While the guarantees allow banks to make loans they might not have made otherwise, they also let foreign firms and governments borrow at much lower interest rates than they would otherwise pay.