Jabal Omar Development Company said its shareholders have allowed it to issue Islamic bonds after the Saudi developer faced problems in raising a multi-billion dollar financing for its sole project.

Jabal made the announcement on the Saudi stock exchange website on Saturday after a shareholders' assembly on Wednesday. It did not elaborate.

Last month, the firm appointed an affiliate of al-Rajhi Bank, the world's largest Islamic lender, to arrange financing worth a previously estimated $3.31 billion.

Al-Rajhi Financial Services was named to arrange financing through sharia-compliant instruments for Jabal Omar's project in the holy city of Mecca, Jabal said then.

Jabal Omar said in April that its previous financial adviser, Saudi investment bank Jadwa Investment Company, had been unable to secure SR12.4 billion ($3.31 billion) to finance the project within agreed deadlines.

A Jadwa source said it had managed to secure just $400 million in financing because of tight credit conditions.

Earlier this month, the stock market regulator launched a market for debt securities, responding to a long-standing demand by some firms to diversify sources of financing.

A surge in lending over the past five years that was fuelled by record oil prices has brought several Saudi banks to curb their credit capacity with loan-to-deposit ratio exceeding at the end of last year the limit imposed by the central bank.

Bank loans in 2008 equalled their total during the previous two years. Concern over fallout of the global crisis has further slowed down credit growth as lenders became increasingly cautious.

The bourse currently trades Islamic bond issued by just two listed firms - Saudi Basic Industries Corporation and Saudi Electricity. The government is a major shareholder in both firms.-Reuters