Diamantaires face funding trouble as Standard Chartered reduces diamond exposure

With Standard Chartered cutting on its exposure to the diamond business, the funding trouble for the diamond industry continues to become a cause of worry, ET reported.

With Antwerp Diamond Bank going in for liquidation, the diamantaires will be looking at other banks. With Standard Chartered’s decision to reduce it exposure to the diamond business, RBS scaling back its loans in the last few years and other lenders insisting on extra collateral is a cause of worry for the industry, adds report.

Also, StanChart has lowered its exposure to gold and bullion trade in India after default by Winsome - an event that rattled banks last year. Local lenders, including large state-owned banks like State Bank of India and Bank of India, discount export bills, and provide overdraft, packing credit and working capital to diamond business. SBI is believed to have the highest exposure. A year ago many diamond companies were told by their banks to chip in more collateral to keep alive existing credit lines, says report.

Further the report adds that, Antwerp Diamond Bank has told GJEPC recently that its loan exposure would be cut in centres like Mumbai, Hong Kong, Dubai and Singapore first where the limits were lesser than in Antwerp, where the overall exposure of around $1.2 billion is much larger. While the liquidation of Antwerp Diamond Bank would hurt some of the Indian houses based in Antwerp, Stan-Chart's decision could impact diamond companies here if other banks are unwilling to take additional exposure.

Besides rough diamond stock, lenders ask for fixed assets, cash margin and claim on receivables for extending credit facilities. Total exposure by Indian banks to the diamond trade is between $6 billion and $7 billion. The interest charged is around 13 per cent.

Financing norms are being tightened even as the industry finds itself in a state of flux. The world's leading diamond company De Beers, a member of the Anglo American plc group, recently said in a report that while diamonds retain their special allure with consumers around the world, future demand levels cannot be taken for granted. The overall category is facing increasingly strong and sophisticated competition from other luxury categories, with diamonds' share of advertising voice in the US market having reduced within its competitive set, said the company, ET reported.

Global rough diamond production in 2013 increased by 7 per cent in carat terms over 2012 levels to a total of around 145 million carats, but this remains well below the 2005 peak of around 175 million carats. The industry is also adjusting to emerging trends like China becoming the world's fast growing market for diamond jewellery and one in six diamond jewellery purchases in the US happening online.