Export Development Canada is making a $500-million (U.S.) loan to Indian conglomerate Reliance Industries Ltd. in a bid to entice the company to expand its Canadian supplier base.
The five-year financing, being announced Wednesday, is EDC’s largest-ever in India and equals the biggest loan made by the Crown-owned lender anywhere in Asia.
“By extending them financial terms, we are encouraging them to augment their Canadian supply chain,” said Todd Winterhalt, EDC’s vice-president of international business development.
“It’s about getting more of those … Canadian companies into their supply chain.”
Mumbai-based Reliance is India’s largest private-sector company. It has more than $66-billion in annual revenue and has vast holdings in petrochemicals, oil and gas, plastics, textiles, telecom and retailing.
The idea is to get more Canadian companies active in the Indian market through Reliance, a long-time EDC customer, he said. The company already buys from roughly 50 Canadian companies, mainly goods and services for its petrochemical business and telecom. These include Evans Consoles, a maker of control room consoles, and Enersul LP, which manufacturers equipment for handling sulphur, both of Calgary, plus Nova Chemicals Corp. and PipeSak.
Reliance chief financial officer Srikanth Venkatachari called the transaction a “landmark deal” that will “provide further impetus to foster trade between RIL and Canadian companies over the coming years.”
EDC has made more than $2-billion in loans to Indian buyers over the past five years, paving the way for $10.8-billion in Canadian exports. That represents roughly 90 per cent of all merchandise exports to India over that period.
But EDC, which has made four previous loans to Reliance, has identified India as a priority market and is aggressively expanding its financing activity there.
“India has been front and centre in our corporate plan for the past three years,” Mr. Winterhalt said. “We see Canadian companies are finding a rich market there [after the Great Recession].”
Like many emerging markets, India presents some challenges for Canadian companies, including regulatory, tax, legal and cultural issues. But companies that do well in India will be well-positioned to do business in the rest of Southeast Asia, Mr. Winterhalt said.
“One of the reasons that EDC tries to deal with these large conglomerates and purchasing powers in emerging markets is to try to mitigate some of those risks,” Mr. Winterhalt said. “So if we can partner … with a company like Reliance, we feel that gives a lot of comfort then to Canadian suppliers to come into the supply chain, knowing that EDC is there.”
Under World Trade Organization rules, government lenders can’t ties loans directly to Canadian purchases. But they can work at linking up Canadian businesses that meet Reliance’s supply chain needs.
Until now, Reliance has largely used Canadian suppliers for its petrochemical business.
More recently, the conglomerate, which owns India’s No. 2 telecom provider, has been building out a 4G mobile network.
“We see a growth opportunity here for Canadian [information and communication technology] and telecom suppliers,” Mr. Winterhalt said.