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Foreign lenders to the beleaguered Enron-promoted Dabhol Power Corporation have rejected a proposal by domestic lenders to buy out their exposure to the project at a huge discount.
The domestic lenders, led by the Industrial Development Bank of India (IDBI), had offered to buy out the foreign banks exposure to Phase I at a 40 per cent discount and the phase-II debt at a steep 70 per cent discount.
In a recent letter the five global co-ordinators of the offshore debt -- ABN Amro, Citibank, Bank of America, ANZ Bank and Credit Suisse First Boston -- have said that the terms of the offer are not acceptable as the discount demanded has been too steep.
"The five offshore banks have written saying that the discount that has been demanded is unrealistic and have now asked the domestic lenders to come back with a more realistic offer," sources in the lenders consortium said.
The five global coordinators of the offshore debt have recently conveyed their decision to Rothschild, the advisor to the domestic lenders consortium as well as to the domestic lenders.
The offer had been made by the domestic lenders as they felt that no solution to the vexed problem was possible unless the foreign lenders exited the project.
Domestic lenders and foreign lenders are locked in arbitration at London for what the offshore lenders allege is breach of the inter-creditor agreement
The response of the offshore lenders is not surprising. The outstanding foreign debt on account of Phase I of the project is $90 million which is entirely covered by the counter guarantee issued by the Union government.
Domestic lenders offer meant that they will pay only $54 million. The foreign lenders were naturally under no compulsion to accept such an offer.
Further, the offer by domestic lenders was only for the principal portion. This meant that foreign lenders will have had to forgo the interest component.
Foreign lenders had in April this year demanded in a letter to the Union government that they be bought out for $339 million which would take care of their exposure to both phases (inclusive of principal and interest).
The offer by the domestic lenders would not even have come close to that. Recently, some of the foreign lenders have demanded $200 million for their exposure to the project under various bilateral treaties.
Further, foreign lenders have received a shot in the arm with the Bank of America successfully claiming $30 million as political risk insurance from the Overseas Private Investment Corporation. ANZ Bank, ABN Amro and Standard Chartered Bank have also filed similar claims with the United Kingdom's Export Credit Guarantee Department.