Just before Christmas, Apollo Global Management, Hong Kong-based hedge fund Asia Research & Capital Management, Goldman Sachs and the World Bank’s International Finance Corporation jointly made a $340m loan to Niko Resources, a Canadian company that is a joint venture partner to Reliance Industries and BP in a vast gas project off the coast of India.
In happier times, the Indian banks may well have been willing to lend to the cash-strapped energy company but no longer. The banks are not in great shape and are too risk averse to lend to lower rated companies whose head office and assets lie partly outside India. Indian banks’ loss cushions remain the weakest in Asia, according to research from Morgan Stanley.
The terms of the Niko financing were generous, though fair given the perceived risk and complicated profile of Niko. In addition to a high rate of interest, the lenders have lots of collateral as well as 6 per cent of the royalties the ailing energy firm collects on the project for many years.