Exim Bank to extend buyer’s credit to shipbuilders

In order help Indian shipbuilding companies bid for international contracts, Exim Bank has decided to provide them with buyer’s credit. Public sector shipyards, such as Goa Shipyard and Garden Reach are in the process of utilising the credit.

Buyer’s credit is a facility of the bank, whereby it helps Indian companies export their products by extending credit to their overseas buyers. These buyers get financing for their imports from Exim Bank.

Using the credit, Garden Reach is in the process of pitching for a ₹1,400-crore order from the Vietnamese Navy for supplying 14 patrol boats.

The Deputy Managing Director of Exim Bank, Debasish Mallick, told BusinessLine in a telephonic interview that for such projects the shipyards have received credit at a low coupon rate of 4-5 per cent. The bank is providing credit after taking a long-term view of the sector. It is also providing working capital and term loans for projects under implementation.

Cheap loans He pointed out that countries, such as China, South Korea and Japan provide credit at very cheap rates. Indian shipyards, in spite of having good products and engineering skills, could not compete because they lacked finance arrangements for the buyers.

“They took a beating in the international market, especially from Chinese companies which have been pushing funds at a very cheap rate,” he said.

Due to the economic slowdown since 2007, the shipbuilding industry is reeling under the pressure of huge loans.

Various discussions are underway on how to restructure the loans. Other than the regular corporate debt restructuring packages, financial institutions, such as Exim Bank, are looking at newer ways to tackle the problems.

According to Mallick, public sector shipyards, such as Mazgaon Docks, Cochin Shipyards and Garden Reach — which primarily build warships and other vessels for the Navy and Coast Guards — are in better financial health than private players, such as L&T Shipbuilding, Pipavav Defence and Offshore, and ABG Shipyard, which are yet to break even.

Counterparty guarantee Mallick said that private shipyards are operating by taking a counterparty guarantee from Exim Bank. The guarantees are facilitated by the companies that place the order for the ships.

These companies then source funds in the form of project finance from the bank for three to five years for shipbuilding. After that, they could be also be provided with five to 10 years of buyer’s credit.

This kind of financial arrangement, Mallick said, would be more stable in the long term.

COMMENT NOW