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. Last Updated: 07/27/2016

Diamonds Suffer as Bank Balks

A consortium of Western banks has reportedly pulled out of talks with Russia's largest diamond producer, Almazy-Rossii-Sakha, concerning providing a $500 million loan facility to finance the company's modernization plans.

The Financial Times reported Monday that Natwest Markets of Britain, which was leading the loan, withdrew because of turbulence on Asian financial markets.

Spokesmen for Natwest in London and ARS in Moscow each declined to comment on the report.

Natwest and ARS had been in talks on the loan for several years, but the negotiations were suspended last January when De Beers, the South African diamond group, severed formal ties with Russia.

The loan was contingent on ARS reaching an agreement with De Beers on supplying diamonds. The two sides finally signed an agreement in October, which took effect Dec. 1 and is due to expire at the end of 1998.

A source close to the banks said the drawn-out talks had hit a big snag, making it likely that the loan facility would be dropped.

ARS is desperate for funds to upgrade its existing mining facilities and raise funds for greater prospecting. The company announced last month that it would delay its planned $350 million Eurobond issue due to unfavorable market conditions.

Analysts said the collapse of the loan deal casts doubt on the trade agreement between ARS and De Beers.

"I wonder whether the Russians might start marketing diamonds independently of De Beers," said one diamond analyst, who asked not to be identified.

"It is quite a serious blow for ARS," he said. "Ultimately, if they don't get the money, their ability to maintain production is going to be severely threatened."