Sadara, the $20 billion petrochemical joint venture between oil giant Saudi Aramco and Dow Chemical, picked four banks to manage the Islamic bond, or sukuk, portion of its multi-billion dollar fundraising, three sources said on Tuesday.

Deutsche Bank, Riyad Bank, Alinma Bank and Bank Al Bilad have been mandated for the deal, likely to be denominated in riyals, which will be only the second project finance sukuk ever to be raised in Saudi Arabia.

Earmarked to raise around $1.4 billion, the sukuk is not expected to be marketed until next year, two sources said.

It is part of a $12.5 billion debt package currently being raised to fund the construction of the project, which will produce more than 3 million tonnes of petrochemicals each year when completed in 2016.

"The sukuk will take at least nine months to pull together," said one banker with knowledge of the matter, speaking on condition of anonymity as the information isn't public.

"They have appointed the banks as they need to start now. Getting it registered and approved by the Capital Markets Authority (the Saudi regulator) takes a long time."

Saudi Aramco wasn't immediately available for comment.

The only project sukuk in Saudi thus far was the 3.75 billion riyals ($1 billion) issue in October from Saudi Aramco Total Refining and Petrochemical Co (Satorp), a joint venture between Aramco and France's Total.

However, while initially envisaged to be sold at the same time as the bank finance was arranged, the Satorp sukuk was completed more than 15 months after the loans were signed.

This was due to concerns among Islamic scholars about the sharia-compliance of using an unbuilt asset, not generating any revenue, as security - Islamic finance is based on the concept of risk/revenue sharing, with interest payments forbidden.

Such issues won't affect Sadara's sukuk as the Satorp offering provides a template to work from.

"The structure from Satorp is in place, although there will be some changes as the (Satorp) structure is quite simple," the same source said.

As well as the sukuk, commercial loans from Saudi and international banks and loans from export credit agencies will be used to raise the $12.5 billion target.

Much of the focus is expected to be placed on Saudi banks to provide loan funding, as lending by international banks has been constrained by Europe's sovereign debt crisis and Basel III, which makes long-term lending more difficult because of capital requirements on banks.

Saudi banks have ample liquidity and keen to lend to quality borrowers, although much of their liquidity is in local currency and not dollars.

Meetings between Aramco, Dow and banks are scheduled to take place next week, one of the sources said, to discuss the funding options.

This follows the initial information memorandum being sent to banks at the end of last month, according to Project Finance International (PFI), a unit of Thomson Reuters.

Royal Bank of Scotland and Riyad Bank are the advisors on the project. - Reuters