NEW DELHI, JULY 22: India's largest long-term financial institution will no longer fund new steel projects, and others following a coordinated policy on lending are expected to follow suit, industry officials and analysts said on Thursday.A senior Industrial Development Bank of India (IDBI) official said on Wednesday it would no longer fund greenfield steel ventures after Essar Steel failed to redeem its $250-million floating rate notes (FRNs) maturing on July 20."The scenario in steel the world over is not very good. The opinion of experts is that the demand recession will remain until 2002," Surender Kumar Kapoor, executive director of IDBI, said.India's liberalised steel industry, suffering from the lingering effects of socialist protection in the past, has been reeling under the combined weight of its own high-cost production and a sluggish global demand hit badly by the Asian economic crisis.Steel makers big and small have been reeling under losses as a result. "It has been a protectedindustry all along, which is why there is a high-cost situation," said Mona Chhabra, analyst at DBS Securities.Essar sought a 90-day grace period on Monday to arrange refinancing or an extension of the five-year-paper's maturity and said it would be repaying interest on the FRNs shortly.Indian projects are financed on a "consortium basis" under which state-run financial giants come together to extend funds to the venture.With IDBI deciding not to fund new steel ventures, such projects will find it almost impossible to get domestic funding from financial institutions, industry officials said."No single financial institution can finance (a steel project) on its own," Kapoor said. Other leading long-term lenders in the country are ICICI and the Industrial Finance Corporation of India (IFCI).An IFCI official said on Thursday his institution would also not lend to fresh steel projects. "It is in line with our practice," he said. "I don't think any new big steel project was in the pipeline as such,"Aniruddha Dange, analyst at ABN Amro Asia Equities India, told Reuters.He said the IDBI decision only confirmed a general understanding among financiers that new steel projects would not be funded. The struggling sector has borne the brunt of low international prices and climbing interest and amortisation costs on loans taken to finance its capital-intensive projects.IDBI alone had about Rs 60 billion of debt extended to the steel sector on its balance sheets at the end of the last fiscal year which closed in March. The government worked out a financial bailout package for the steel industry last year, which has not helped the sector much.
