Diamond Industry’s troubles this year have been exacerbated by closure of Antwerp Diamond Bank (ADB). Last month Belgian banking and insurance company KBC group announced the closure of ADB after it failed to meet conditions set by EU to find a buyer. The impact of the bank’s closure is two-fold – all borrowers have to settle outstanding loans to the bank and other banks have become wary of lending to diamond industry.
Bank Leumi, JPMorgan Chase and Sovereign Bank among others, have already exited the jewelry business and banks like RBS, Standard Chartered, ABN Amro have reduced their exposure to diamond industry. State Bank of India (SBI) has asked diamond companies to provide more collateral to maintain their existing credit lines. Lenders are also asking for fixed assets, cash margins and claim on receivables as collateral along with rough diamond stock.
Since majority of diamond processing happens in India, it is worst hit in terms of price reduction by 5 to 20% to offload inventory and reduce outstanding loan amounts. ADB’s Indian branch has direct financing worth INR 1,200-1,400 crore (approximately USD 200 million) to Indian diamond industry. The repayment schedule is not yet known but if finalized for shorter timeframe of 1-2 years, it will result in fall in stock keeping capacity. Vipul Shah, Chairman of Gem & Jewellery Export Promotion Council (GJEPC), told The Hindu, an Indian national newspaper, that the impact due to closure of ADB would be INR 600 – 800 crores (approximately USD 100 million) and create a huge liquidity crunch for the industry.
Although these incidents have a negative impact on diamond industry in the short term there may be possibility of some long-term benefits to the whole industry chain:
- > Large discounts ahead of the Indian Diwali festival season would make the retail consumers happy and boost market demand. This could attract customers who were earlier shying away from diamond purchases ahead of the gifting season due to high prices
- > A forced reduction in inventory levels could bring the stocks to more sustainable levels adding stability to prices along the chain
- > Increased pressure from financial institutions will increase disclosures from all players about the origin and quality of stones. De Beers has showed its strategic wisdom by demanding more financial transparency from all its new sightholders for the contract period commencing in 2015