KARACHI, Sept 22: The textile sector may not be considered for project financing out of the $100 million facility the Citibank has earmarked for project financing after entering into a risk- sharing participation agreement with Overseas Private Investment Corporation (OPIC) of the USA.

Top bankers well-versed with OPIC financing said the textile sector would not be able to get project financing under this facility primarily because OPIC would not approve of it. The reason is that the US itself is a textile exporting country and OPIC normally does not encourage financing of textile sector of the competing nations. When a bank makes loans under a facility approved by OPIC for risk sharing it normally has to seek the OPIC approval for the reason that OPIC being a party to it has to evaluate all risks involved.

It is not a stated policy of OPIC to disallow financing under the facilities backed by it to those sectors of other economies that compete with the US. But “the ground reality is that it hardly accommodates such sectors,” to quote a seasoned banker who is well-versed with the nitty gritty of OPIC-backed financing.

On Friday last the Citibank in Pakistan and OPIC activated an agreement for risk sharing under which Citibank will make a $100 million lending in Pakistan. The visiting US Treasury Secretary John Snow, who is on the board of directors of OPIC, chaired the kickoff ceremony held in Islamabad for the implementation of the facility.

Citibank and OPIC had entered into this agreement a couple of months ago and last week the two sides effectively activated it.

“Now the stage is just set for us to start lending under this facility,” Country corporate officer of Citibank in Pakistan Mr. Zubyr Soomro told Dawn. He said lending under this facility would be made out of Citibank resources—and in local currency. “For a certain percentage (of the total lending in each case) OPIC would provide guarantee that would lower the risk of non- payment,” he said. Mr. Soomro said his bank would make project financing under this $100 million facility that translates into roughly Rs6 billion. “We will lend to both the local industry as well as multinational companies operating here,” he said without making a comment on whether the textile sector would also be entertained.

But sources in the banking industry say Citibank would need to get a formal approval from OPIC before making any loan under its $100 million facility adding that OPIC would not allow textiles financing. “OPIC normally does not encourage financing to those sectors of other economies that have competitors in the US,” said a top banker well versed with the OPIC-backed financing outside this country.

Business leaders appreciate banks efforts to restart project financing in Pakistan after a gap of many years. But they say project financing would bring in desired results only when the textile sector gets its due share. “What we need right now is to prepare the textile sector to face the challenge of quota-free trade regime that would be in place from January 2005,” said a former chairman of SITE Association of Industry Mr Majyd Aziz.

He said if this sector that accounts for more than 60 per cent of total exports is ignored in project financing “we would be left behind.”

“If the US says it is going to allow us greater access to its markets, OPIC should not block project financing to the textile sector of Pakistan,” he said adding “if this happens this would be a contradiction of sort.” Mr. Aziz said OPIC should leave it to the top management of Citibank to identify the areas where project financing would work well.

INTEREST RATES: Officials at Citibank say that the bank would price the loans made out of its $100 million facility “on case by case basis” keeping in view the tenure of financing and the quality of the borrower. They say it is premature to say whether fixed or floating interest rates would apply on the loans made out of the OPIC-backed financing. But they do appreciate that generally banks in Pakistan now tend to make long term loans on floating rates as the financial markets have matured to some extent.