Jabal Omar Development had hired private investment bank Jadwa Investment in July to arrange the financing for its giant real estate project near the Grand Mosque on some of the world's most lucrative land plots.
The company raised $537 million by selling a 30% stake in an initial public offering in November 2007 and now it may be forced to seek more funding in this way.
Jabal Omar Development has terminated the contract with Jadwa Investment for having not been able to secure financing within the deadlines they have promised,' the company said in a statement. It is now considering the issue of a sukuk to its shareholders.
The development is one of five mega projects planned for the city and involves the construction of 39 residential and hotel towers with heights ranging from 20 to 48 storeys. When completed the towers and public courtyards will accommodate 45,000 residents and 150,000 worshipers during peak times.
'The size of the financing is big but again this is a real estate project in Mecca, the revered Mecca, which attracts millions of pilgrims,' said Turki Fadak, head of the Arab Centre for Financial Consultancy.
'The economic conditions and the global crisis may have turned banks off lending,' he added.
However some banks say they are actively lending within the real estate sector. Al Rajhi Bank said it wants to take a leading role in the Saudi property business.
Others point out that a number of other major developments are going ahead in Mecca.