After the closure of Antwerp Diamond Bank (ADB), a major financier to the diamond industry, some time back, financing issue has come back to haunt the diamond industry. Standard Chartered Plc., which has a USD 2 billion exposure to the diamond industry and a major financier to the industry along with ABN AMRO, is asking more loan protection from its clients in India and Belgium, for diamond financing.
London-based Standard Chartered is asking its clients in the diamond pipeline to either acquire payment insurance or provide a 100% collateral. The move is a part of CEO Bill Winters to restructure the bank’s underlying assets. Standard Chartered reduced its commodities exposure by 28% to USD 40 billion and have also cut finances to Oil and Gas sector.
Also, the collaterals expected from the diamond clients won’t be expected in form of trade receivables. Clients failing to meet these terms may either end up paying higher interest charges or non-renewal of their debt facilities, according to Bloomberg.
According to Bain & Co., diamond processing (cutting and polishing) firms had no profit margins last year compared to 4% profitability in 2013. In 2016, the debts of diamond pipeline’s midstream businesses are estimated to be over USD 13 billion. This has put pressure not only on the banks but also on the diamond processers who are finding it difficult to service their debts. Several bankruptcies in the diamond industry are a testament to the phenomenon. Recently, a London-based diamond investment company has been ordered into liquidation.
Though last year, National Bank of Fujairah (NBF) had announced that it may be willing to fill the financing hole left behind after ADB winding, such efforts may in itself may not be enough for the diamond industry considering pressures faced and moves taken by Standard Chartered may be similarly echoed by other banks too. Transparency being the key to the industry’s liquidity crisis has been emphasized earlier.