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Raghu Mohan
Mumbai, Feb 10: With the countdown to Industrial Development Bank of India (IDBI)'s five-year $100-million foreign currency loan priced at 150 basis points over Libor just a few days away, concerns are being raised over the FI's exposure to the steel sector. Lead arranger ANZ Investment Bank, sources say, will have to do considerable hardsell for the issue to sail through.
Initial indications from the cross-border loan market is that "we expect IDBI to go beyond its balance sheet disclosures, especially with reference to the steel industry. NPAs will be of particular interest". The IDBI loan comes after a lull in floatations by FIs, and is all important given the current state of the financial sector. Unanimity prevails that subscription to issues on the "basis of name is a thing of the past. Assessment of credit risk is up by a few notches after the Asian crisis".
The steel sector has by far been the largest recipient of IDBI assistance. As of end-March'98, the steel sector accounted for 12.59 per centfollowed by cotton textiles at 11.35 per cent, chemical products (7.14 per cent), cement (6.91 per cent), electricity generation (6.20 per cent) and paper and paper products (5.48 per cent), artificial fibre (2.82 per cent), food products (3.68 per cent), basic industrial chemicals (4.07 per cent), drugs and pharmaceuticals (4.11 per cent) and fertilisers (5.21 oper cent).
The deal comes at a time when IDBI itself has fared none too impressively. If IDBI's third quarter results are anything to go by, net profits at end-March'99 may well be lower than the previous fiscal's Rs 1,501 crore. On a quarter-to-quarter basis, net profits have moved down from Rs 361 crore, Rs 344 crore and Rs 303 crore. The FI has also pared its disbursals in recent times.
New-generation steel concerns namely, Essar Steel, Ispat Industries, Jindal Vijaynagar, Lloyds, Malvika Steel, Usha Ispat, Rajinder Steel as also older ones like Tisco and the Steel Authority of India have been reeling under dumping from the CIS and south-Asiancountries. The problem has been compounded further with several of the new entrants being over-stretched on diversification and high-interest costs.
"It is left to individual institutions and banks to take a decision on whether fresh funds will be extended or not...nobody will waive prudential norms (to accommodate fresh loans). We are yet to take a view on how much loans can be given", IDBI's chairman GP Gupta told The Financial Express late last month, as rumours of pressure from the New Delhi gathered strength.International banks are, however, wary with recent developments like the exit of Mohan Guruswamy as financial advisor to finance minister, Yashwant Sinha, over allegations that the former had sought to influence assistance to certain steel concerns. These have lent credence to reports that the FIs are perhaps under pressure to extent fresh loans to the steel sector.
The IDBI loan transaction is critical for both the borrower and lead arranger, ANZ Investment Bank, coming as it is at a time whencross-border loans flows are down to a trickle.
International Financial Review puts the figure during the last calendar at $1.47 billion as opposed to nearly $6 billion in 1997. In recent times, ANZ Investment Bank just about managed to pull through the $100 million loan of the Power Finance Corporation with help from the State Bank of India. A recent $75 million loan for the Indian Railway Finance Corporation (IRFC) lead-managed by ABN Amro Bank sailed through, but only after swapping the underlying dollar facility into yen, and, moreover, it was a refinance transaction.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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