Diamond industry bailout

Emma Alberici reported this story on Friday, May 22, 2009 08:13:00
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The diamond industry is struggling with the global recession. A group of international banks has agreed to give the diamond industry a one-billion euro loan and they'll take diamonds as collateral for the first time.

TONY EASTLEY: Across Europe, the deepest recession in more than 70 years has prompted governments to bail out the banks and car manufacturers. But now another surprising industry has joined the queue for a handout.

A group of international banks has agreed to give the diamond industry a one-billion euro or $AUD1.8-billion loan and they'll take diamonds as collateral for the first time.

Europe correspondent Emma Alberici:

EMMA ALBERICI: The diamond trade dominates the city of Antwerp in Belgium. There are 1800 companies selling the precious gems there but during this economic crisis, the girl's best friend seems to be lonelier than ever.

Prices are slumping and worldwide sales volumes are down 30 per cent. Banks have been loath to expose their balance sheets to volatile prices and are too scared to risk losing the gems when a jeweller collapses.

Philip Claes is with the Antwerp World Diamond Centre.

PHILIP CLAES: Diamond businesses are a very capital intensive business, you need a lot of money - money from banks of course and you need credit.

EMMA ALBERICI: Antwerp handles 80 per cent of all rough diamonds sold globally and about half of all cut stones. But there are now more diamond centres emerging across the world, namely in Mumbai and Dubai where banks have played a key role in the sector's growth.

A consortium of financiers has now agreed to throw a one-billion euro or $AUD1.8-billion lifeline to gem dealers which Philip Claes says will be crucial for the survival of the industry. It includes Dutch bank ABN Amro, The State Bank of India, Bank of India and India's biggest private sector bank ICICI.

PHILIP CLAES: Our imports and exports figures are going down with 40, 50 per cent; rough diamonds as well as polished diamonds. So the diamond dealers, they need liquidity.

EMMA ALBERICI: Hungarian born Geoffrey Farrener has been a diamond trader in London for 40 years and has never seen anything like this.

GEOFFREY FARRENER: You always get fluctuations, but never had it quite the same as this time. This time it's slightly different. The buyer wanted two months of the salary and they save up for it.

EMMA ALBERICI: Over the past year, the diamond industry has feared that diamonds might well be theirs forever. They've built up a stockpile worth $AUD8.5-billion.

But the new credit deal means they'll be allowed to use those gems as security against their loans for the first time.

This is Emma Alberici in London for AM.