2 min readMumbaiJan 27, 2014 03:22 AM IST
First published on: Jan 27, 2014 at 03:22 AM IST
At a time when the country is leaving no stones unturned to boost exports and bring down current account deficit, Essar Steel is unable to execute a $6 billion steel products export deal as the domestic general insurers are reluctant to provide cover to the deal.
Such a cover is necessary for the deal to ensure that if overseas buyers fail to pay the export proceeds, the banks which will be funding the deal can recover the amount from insurance companies. Without such a cover, banks and financial institutions will be hesitant to take up financing big export deals.
According to industry sources, Essar had approached state-owned Export Credit Guarantee Corporation (ECGC) which has a monopoly in providing such covers but the latter responded with reluctance.
“We were not comfortable with the idea taking up such a big export deal. If we take such a huge cover, it will exceed our exposure norms,” said a senior ECGC official. For export credit insurance for banks, the exposure norms for a single exporter and an exporter group having business in the same sector are fixed at 50 per cent of the company’s net worth. Apart from the size of the deal, ECGC also considers the financial profile of the party or client involved.
Essar said the group doesn’t envisage any problem in getting the necessary cover. “Essar Steel does not foresee any hurdle in its export plans. Its plan to export of approximately $6 billion is over a ten year period. ECGC insurance, if required, will be arranged by the banks supporting the transaction,” a spokesperson of Essar said in a statement to The Indian Express.
ECGC has increased its authorised capital from Rs 1,000 to Rs 5,000 crore. The corporation’s net worth is currently about Rs 2,500 crore and it has further made provisions to the extent of Rs 2,500 crore.
ECGC had informed the company that they may be able to take interest in the deal provided the deal is structured in such a way that the export proceeds would be kept in a separate account. However, this has not been acceptable to the company.
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