Breakthrough for US-Indian project and trade financing

US Ex-Im Bank agrees to guarantee local currency loans in a deal brokered by Bank of America.

In a deal noteworthy for its expediency, the US Export Import Bank (US Ex-Im) has signed a memorandum of understanding with the Industrial Development Bank of India (IDBI) to provide $300 million of financing guarantees. What makes the deal noteworthy is that for the first time, US Ex-Im will provide rupee guarantees as well as traditional dollar guarantees.

The structure of the deal works as follows: Indian borrowers will approach the IDBI for finance to import US goods or services. The IDBI will get guarantees from the US Ex-Im and the money will be lent to the IDBI through Bank of America - the arranger and facilitator of this breakthrough deal.

By taking local currency risk, US Ex-Im has taken a departure from traditional export credit agency financing schemes. It has listened to its clients who all say that post Asian-crisis, local currency projects have to be financed through local currency loans. "Borrowers and lenders want a natural hedge," says Ajay Sagar, head of structure trade finance at Bank of America in Bombay. "These days it makes sense for everyone to deal in the currency of revenue."

The deal was signed last Thursday September 14 in Washington DC by Norman Mineta, US Secretary of Commerce and Yashwant Sinha - India's Finance Minister. The signing coincided with a recent trip to the US by Indian prime minister Atal Bihari Vajpayee.