* Jabal Omar says terminates contract with Jadwa
* Jadwa says cancellation invalid, may seek compensation
(Adds Jadwa's statement, analyst)
By Souhail Karam
RIYADH, April 29 (Reuters) - A Saudi firm said on Wednesday it could not secure $3.3 billion in financing for a property project near the holy shrines at Mecca, a fresh sign of the continued impact of the global financial crisis on the kingdom.
Jabal Omar Development Co hired private investment bank Jadwa Investment in July to arrange the financing for a major real estate project near the Grand Mosque, on some of the world's most lucrative land plots.
"Jabal Omar Development Co announces that it has terminated the contract with Jadwa Investment ... for having not been able to secure financing within the deadlines they have promised," Jabal Omar said in a statement.
Under the terms of the contract, Jadwa had been meant to secure both long-term financing through the issue of a sukuk -- the Islamic alternative to conventional bonds -- and short-term financing.
It was not immediately clear why the money had not been raised.
In an emailed statement, Jadwa said the cancellation was "null and void" and that it could seek compensation.
"Jadwa ... maintains its lawful rights as set forth under the general statute and per the agreement signed with Jabal Omar ... Jadwa ... reserves the rights for reimbursement and indemnification for any losses or damages arising from the unilateral termination of this agreement," it said.
To many analysts, Jabal Omar's announcement was a reminder of financing constraints faced by what are widely viewed as some of the country's most solid investment projects.
"The financing is big but again this is a real estate project in Mecca, the revered Mecca, (involving) millions of pilgrims," said Turki Fadak, head of the Arab Centre for Financial Consultancy.
Saudi authorities have been pouring billions of riyals into Mecca to improve its infrastructure and facilitate pilgrimage rituals carried out by some 4 million Muslim pilgrims each year.
"Mecca has a solid economy based on a constant flow of government and private investment. Banks are more risk-averse but the size of the financing is hefty," said John Sfakianakis, chief economist at HSBC's Saudi affiliate.
SUKUK EXIT
Jabal Omar said it would propose to its shareholders on June 10 allowing the firm to make a sukuk issue.
Saudi officials, including central bank governor Muhammad al-Jasser, have been encouraging local firms to tap the Islamic bond market as an alternative source of financing following repeated interest rate cuts to try to alleviate the impact of the global financial crisis.
Jabal Omar raised $537 million by selling a 30 percent stake in an initial public offering in November 2007, before starting works at the project.
The remaining 70 percent of the company is held by the owners of a 23 hectare (56.8 acre) plot of land in Mecca across a main street from the Grand Mosque.
Jadwa, which was licensed by Saudi regulators in 2006, has said the Jabal Omar financing was its largest ever.
Its founding partners include a prominent Saudi royal, Saudi billionaire Mohammed Ibrahim al-Issa and well-known Saudi firms.
In October, Khazanah Nasional Berhad, the investment arm of the Malaysian government, paid $76 million for a 10 percent stake in Jadwa. (Editing by Andrew Macdonald) ($1=3.750 Saudi riyals)