Paradise Papers :Indian Banks Lend to offshore entities during 2008 crisis

New Delhi Nov 8: The International Consortium of Investigative Journalists (ICIJ) has once brought out paradise papers - the documents to shun the light on offshore entities.

The documents have shown how companies have defaulted banks and deployed strategies to repay some of the debts.The papers reveal how Indian banks have given loans indiscriminately during 2008- the global crisis whereas European and American banks refused to fund loans.

In 2007, Chennai-based chemicals major Sanmar Group acquired Trust Chemicals Industries (TCI) of Egypt through its Cayman Islands subsidiary Pharaoh Chemicals Limited (PCL), which took a loan of $300 million from ICICI Bank for the acquisition.

Sanmar Group then executed a series of financial restructuring moves through inter-company fund transfers that drastically altered the holding structure of the companies.To execute the restructuring TCI was to take a loan of $485 million from BNP Paribas in December 2007 for buying a 50 per cent holding in PCL, along with the purpose of repayment of the ICICI Bank loan and an expansion of its business.

The BNP Paribas loan did not materialise due to the 2008 global financial meltdown, but Sanmar managed to secure loans amounting to $565 million from a consortium of Indian banks at a time when the banking system was practising extreme caution in the wake of the slowdown.

ICICI Bank — the original lender for the deal — was part of this lending consortium, alongside the State Bank of India, Bank of India and Indian Overseas Bank, among others, show records. Ultimately, in March 2009, the consortium provided a loan of $565 million to TCI in Egypt.

Sanmar Group response

We next tried to raise a dollar loan from the European loan markets through BNP Paribas. Unfortunately, by the time BNP Paribas got to the stage of actually placing the loan, the European markets had also melted down.our internal team raised dollar loans from the offshore
branches of Indian banks using the documentation that BNP Paribas had developed. The support that the Indian banks gave to the project was invaluable, as all other sources of funding had dried up.