The diamond business is yet bright and has a good future in the coming days

Hitesh Patel, Managing Director of Dharmanandan Diamonds Pvt. Ltd., joined the family business in 1997 to help his father Laljibhai Patel, the founder of Dharmanandan Diamonds Pvt. Ltd. Egged on by its success, Hitesh set up the overseas presence of...

19 august 2019

The talk around LGDs is all hype

As a teenager, Luca Luterbacher began to design and manufacture single pieces and individual items for wealthy private family friends from Switzerland and Lichtenstein. In 2017, he finally invested in his own luxury trademark "Luterbacher."...

12 august 2019

Correct adjustment of advertising is the major challenge

At the recent Amberforum held in the Baltic city of Svetlogorsk, Andrey Yanchevsky, Head of the trade representation of the LA VIVION jewelery company shared his opinion with the correspondent of Rough&Polished on the state and prospects of the jewellery...

05 august 2019

Small-scale diamond mining is the future in Botswana – Leon Daniels

Pangolin Diamonds, which is currently the most active diamond exploration company in Botswana, has called upon authorities in the southern African country to include diamonds into the minerals permit for small scale mining operations. Pangolin chief...

29 july 2019

“There has been a strict policy in Israel against LGDs; have been forbidden on IDE trading floor for years.”: Aviel Elia, Managing Director- IDI

Aviel Elia, an attorney by profession, has served as Legal Adviser and Company Secretary of IDI since 2013. As a key member of the Israel Diamond Institute (IDI) management team, he has been involved in developing company strategy and negotiating...

22 july 2019

A new normal in the diamond trade

12 august 2019

By Ernie Blom, WFDB President

ABN Amro Bank recently sent a letter to several of its diamond clients stating that it would be limiting finance for rough purchases "in view of the continued lack of profitability in the purchase of rough goods. We recommend you to show constraint and only consider purchasing rough when there is sufficient profitability. We want our clients to … refrain from purchases just with the aim to hold on to existing allocations with the mining companies or just to remain fixed to sources only hoping for better times to come.”

In other words, continuing to lend to businesses that cannot turn a profit is not what ABN Amro will do. What can one say about this?

It is, of course, public knowledge that sightholders have been taking serious losses on every sight since January, and ABN Amro correctly questions how long this can continue.

The whole credit issue started some 15 years ago with the call from the international market for higher credit due to downstream integration. Since the DTC promoted supplier of choice policy, credit has literally exploded.

Antwerp Diamond Bank and Standard Chartered Bank have closed operations in the meantime. Bank of Baroda and Union Bank also withdrew from Antwerp. Liquidity became the scarcest commodity in the trade. Rumors have it that ABN Amro wants to seriously reduce further its portfolio – after it closed its US and UAE branches. This could be a potential disaster for Antwerp. All will now depend on how Indian banks will support the global trade and that is where the problem arose last year.

Banks have become extremely cautious with regard to diamond financing after Nirav Modi and his uncle Mehul Choksi, Chairman of the Gitanjali Group, were allegedly implicated in a USD$2 billion fraud involving the use of fake guarantees from the Punjab National Bank.

In the wake of the alleged scam, a series of steps have been implemented in India.

According to the latest reports from India, the government-owned State Bank of India, India’s largest lender, has severely tightened controls for borrowers in the local diamond and jewelry sector. Most banks lending to the Indian diamond industry have begun trying to reduce their exposure to diamond firms.

Companies acting fraudulently can hurt the diamond industry as a whole. At some point, the banks learned their lesson and decide to reduce risk by supplying less credit and demanding greater collateral and secured assets. This is what is already happening. The end of financial backing altogether could be right around the corner. Other financial institutions have already looked at the string of negative outcomes and may conclude that the diamond industry is a high-risk sector and decide not to work with the sector at all. In Belgium, diamantaires even have issues opening a simple bank account.

An oversupply of financing and credit in the wrong hands has led to wrong decisions in the diamond industry. It is common knowledge that there are many companies that are overleveraged in the diamond trade. If they fall, they could take with them the many companies to whom they owe money. Banks might not only reduce financing to poorly managed companies but are eventually going to be cutting off prudently managed companies as well.

It is clear that some issues will have to change. Transparency will have to improve. It is important that the entire diamond industry addresses this topic because what hurts one diamond center hurts them all.

Therefore, ABN-Amro’s message comes at the right time. It is the mid-stream’s responsibility to buy wisely. Manufacturers know that they don’t need some of the rough they are buying – be it by type of goods or quantity. The midstream should adjust their level of demand according to their own sales volume and prices and only buy it if there is a profit to be made.

We have seen the market already anticipating the message which was given. The Times of India said last week that a combination of factors has led to a nearly 50% decline in production by small diamond manufacturing units in India. The TOI estimates there are nearly 4,000 diamond polishing units in Surat, some 500 of which have not opened since the summer vacation ended last week.

It is the role of the banks to ensure that the companies to whom they lend know how to assess the value of rough diamonds and act according to market trends. Of course, an oversupply of financing should not lead to an undersupply either. ABN Amro has been in the diamond trade for over 100 years since the high days of Amsterdam as a diamond hub.

The market should, however, come to a new normal and buy only when profit can be made and refrain from borrowing from the banks simply with the aim of holding on to their status with the rough suppliers or be used for other business.

Blaming just the suppliers is the wrong message.

The ABN Amro letter is a wakeup call for the industry.