Search the Internet          Tips  Sites: Finance, Investment

Dabhol lenders plan forbearance pact with export credit agencies

S Ravindran

Domestic lenders to the Dabhol project are looking at entering into separate forbearance agreements with all export credit agencies whose loans the Indian financial institutions and banks have guaranteed.

Such an agreement will mean that the ECAs will not invoke any guarantees within an agreed upon time-frame. That, in turn, will allow Indian banks and financial institutions to take a smaller hit on their books.

Institutional sources told Business Standard they have already inked such a "standstill clause" with the Japanese Bank for International Cooperation, and were looking at arriving at similar arrangements with the US Exim and OND of Belgium as well.

The three together have a substantial exposure to the Dabhol Power Company, with JBIC's alone being Rs 11.07 billion. The exact exposure of US Exim and OND could not be ascertained.

However, sources said that neither US Exim nor OND was particularly keen on a forbearance agreement. A senior FI source said, "We are planning to approach both OND and US Exim for signing such a deal. The tenure of the deal would depend on what the two ECAs agree to."

The move gains additional significance in the wake of the declaration of bankruptcy by Enron Corporation, DPC's US parent. The ECAs' exposure is guaranteed by the domestic financial institutions. They will take a huge hit if the guarantees are invoked. This will further compound their problems as banks and institutions are already reeling under the burden of huge NPAs.

Earlier, JBIC had threatened to invoke this agreement and had to be pacified by a deal in which the Industrial Development Bank of India, ICICI and the State Bank of India took over the guarantees of the Industrial Finance Corporation of India.

The Japanese ECA was worried as it was not sure whether IFCI would be able to honour the guarantee in the wake of its poor financial health.

Powered by

YOU MAY ALSO WANT TO READ:
The Enron Saga
The Rediff-Business Standard Special
The Budget 2001-2002 Special
Money
Business News

Tell us what you think of this report