Banks avoid financial backing for Etisalat over letter of support issued for subsidiary

November 8
8:11 AM 2013

Banks, namely international lenders such as Standard Chartered Plc and Citigroup Inc have decided to take divergent paths with Etisalat, the Abu Dhabi based telecommunications firm. The point of conflict arose from the USD400 million the banks had lent to Etisalat's dissolved Indian affiliate. This was confirmed by three banking sources familiar with the issue.

The two banks are the most active global financial institutions in the Gulf region. They did not participate in the USD8 billion financing arranged back in April to provide financial backing Etisalat's bid for the 53% Vivendi owns in Moroccan firm Maroc Telecom.

Banks have become tougher on outstanding and unpaid debts as it faces more stringent capital rules since the last global financial crisis. This case centers on a loan made to Etisalat DB, the Gulf region's Indian affiliate where it owns 45% of the firm. The loan was provided after Etisalat had submitted 'a letter of support'. This is a well-accepted banking practice where a parent firm would issue an acknowledgement of support for the proposed loan of the subsidiary. There is no legal obligation concerning the loan, according the bank sources.

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