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De Beers hikes prices, upsets diamantaires in India

24 january 2014

Even as diamond major De Beers has increased the prices of rough diamonds in the small category by around 7% and big diamond category by an average of 5% at its first sight of 2014 in Botswana's Gabarone on Monday, January 20, and has got Indian diamantaires crying foul at the move, smaller diamond companies are scampering to pay up their overdue loans before the taxman comes calling.
Public sector banks and lenders including Punjab National Bank and Central Bank have served legal notices on Mumbai based Winsome Diamonds and its sister concern Forever Precious Jewellery, to recover loans worth over $646 million (Rs 40 billion), Mineweb reports.
"Gem and jewellery company Winsome Diamonds, which has been in the spotlight for having defaulted in loan payments, has been served legal notices. The jeweller was known as Su-raj Diamonds earlier and with banks pressing their case, many small diamond merchants have been running helter skleter,'' said Mohit Arora, diamantaire with an export house, who was present at the De Beers sale.
At the sight, the world’s biggest diamond producer noted positive demand from the US, China and a little bit from India. The US is the biggest diamond consumer, followed by China and India.
"By hiking prices across the board at an average of 5%, Indian sightholders are now wary of the next De Beers auction, since the diamond major has said it would hike prices till March 2014," said Arora, adding that there was much concern about consumer demand in India at the meet.
Stating that the hike in prices by De Beers would affect the profit margin of small and medium diamantaires and force them to go in for cheaper lab grown diamonds, Arora also alluded to the growing menace of lab diamonds.
Another sightholder added that things had just about started to pick up in the cutting and polishing centre at Surat, with good Christmas sales. However, many small unit owners were still not in a position to buy costly raw material.
"The legal notice on Winsome has scared smaller companies, who are bound to go for lab grown diamonds now and mix them up later with the natural diamond parcels," said the official.
In November 2013, banks had served notices on Winsome Diamonds and had declared the two companies as `wilful defaulters'. Following this, an inquiry by the Central Bureau of Investigation was initiated.
The Reserve Bank of India defines a wilful defaulter as a borrower that is able but unwilling to pay, and has diverted loan proceeds towards other ends, or has overstated profits to secure a loan.
Bank officials and investors said they have not been able to contact Jatin Mehta, the company's promoter. Winsome Diamonds Director Ramesh Parikh refused to comment, stating that the matter was sub judice.
An official of Winsome Diamonds said foreign clients had failed to pay their dues in March 2013, which had led to the default. Foreign banks had encashed the letters of credit given by Indian banks. The official added that foreign clients, who owed more than $870 million to Winsome Diamonds and about $370 million to Forever Precious, have promised to repay the dues.
A similar incident played out in October 2010, when faced with the biggest credibility crisis in the Indian diamond industry, as many as 20 banks had run the risk of losing $323 million (Rs 20 billion) lent to a dozen diamond firms in Surat.