Govt opts for costlier Chinese credit to buy railway cars

The government is in talks with China to secure costlier credit for purchasing railway coaches, which officials said might attract as high as 6.0 per cent interest rate.
The CRRC Sifang Company Ltd, a subsidiary of China South Locomotive and Rolling Stock Industry (Group), will supply the carriage to Bangladesh Railway by arranging financing from Shanghai Pudong Development Bank.
Officials at the state-run Economic Relations Division called the suppliers' credit 'very costly'.
The Chinese company recently submitted a revised credit proposal to the division and the Bangladesh Railway, elaborating the terms and conditions of the loan.
Under the loan, Bangladesh Railway (BR) will procure some 200 passenger carriage.
The tender for the procurement was floated in October 2012. The project director's office late last month asked the Chinese company to submit a revised loan proposal.
For the project, some US$ 849 million would be taken out from the Chinese bank.
According to the terms and conditions of the bank, the rate of interest of the loan will be six months USD LIBOR plus a margin of 3.50 per cent. Presently the six month LIBOR (London Interbank Offered Rate) rate is 2.46 per cent.
An additional 1.0 per cent interest rate will be calculated on the total amount of the insurance facility to be covered by China Export and Credit Insurance Corporation (SINOSURE) as arrangement fee and another 1.0 per cent commitment fee will be charged on the un-drawn portion of the insurance facility.
The repayment period of the loan will be 24 equal and consecutive semi-annual installments of the principal with a six-year grace period.
Contacted over telephone Wednesday, joint secretary of the ERD AKM Matiur Rahman told the FE that Bangladesh usually obtains concessional loans from China with around 2.0 per cent interest rate.
But this time the government is taking out commercial loan, which has high rate of interest since these are linked to LIBOR.
"We've received a proposal from a Chinese company for this suppliers' credit and the decision of which will depend on negotiations," he said.
An inter-ministerial meeting has been called to decide on the loan, he added.
Mr Rahman said that the 6.0 per cent interest rate the Chinese bank has offered is "very high". "I think the interest rate of commercial loan can't be over 3.5 per cent to 4.0 per cent, maximum 5.0 per cent."
"We obtained commercial loan in the past. While negotiating this loan the previous experience will be helpful. The interest rate will depend on negotiation," he noted.
Additional director general (Rolling Stock) The BR Md Shamsuzzaman told the FE that so far, the authority has not received any commercial loans for the railway sector.
He said the Chinese company had proposed the interest rate for the loan to the government, which is not fixed yet. "The scope is there to negotiate," He added.
Finance Minister AMA Muhith said recently that the government has been taking out costlier loans in the last couple of years to be familiar with high rate of interest of loan as the country is on track to become a developing economy. He said such loans were taken out from Japan, the World Bank and the Asian Development Bank in recent years.

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