IL&FS debt imbroglio puts diamond trade on the edge

Suppliers keen on assurance from clients on payment obligations The payment default by some Infrastructure Leasing & Financial Services (IL&FS) group entities and the resultant debt overhang has, in its wake, reportedly created a panic reaction in the diamond market as members of the diamond trade are known to be avid investors in the infrastructure and realty sector. Incidentally, IL&FS headquarters is located a few hundred meters away from Bharat Diamond Bourse in the Bandra-Kurla Complex (BKC) of Mumbai. Fear of default Anticipating a chain reaction and payment defaults, suppliers of rough and polished diamonds called up their clients to ensure that there was enough liquidity with the latter to service the payment obligations. “We were worried as soon as we came to know of the defaults by IL&FS companies. Most of our clients do invest in this sector through different instruments and we wanted to ensure that we get our payments on time and they are not in trouble” said a senior official of a leading diamond company. Clients of suppliers could be polishers or sellers who engage with end-users. “We are keeping a close watch on the development and believe that there is no contagion effect. The diamond trade is anyway under stress after the banks have choked fund flow following the Nirav Modi scam. Any major default by any large player on account of the IL&FS imbroglio will be catastrophic,” said a diamond trader, who declined to be quoted. However, the decision of the government to disband the IL&FS board and constitute a new one under the leadership of banker Uday Kotak has come as a breather for the trade which believes that further major defaults could be avoided through liquidation of IL&FS’s assets and resource mobilisation. On Tuesday, IL&FS group company shares, came under selling pressure on Tuesday as parent IL&FS failed to service inter-corporate deposit obligations on Monday. While IL&FS Investment Managers shares plunged 5% to close at Rs. 9.32, IL&FS Engineering & Construction Co. closed with a loss of 10% at Rs. 20.43. The shares of another group company IL&FS Transportation Network also lost 9.91% to end at Rs. 24.55.

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