Page 186 - DMGT545_INTERNATIONAL_BUSINESS

Unit 9: International Financial Institutions-I

notes
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Caselet suzlon energy: financing Problems

he primary objective of the case is to deal with the problems encountered by Suzlon
Energy Ltd., due to the liquidity crisis that surfaced in the company in the year 2008.
TSuzlon started as a very small company to provide alternate source of energy to the
textile company of the founder, Tulsi R.Tanti. With in no time, it evolved as the world’s
fifth largest manufacturer of wind turbines. However, the company faced several problems
in the year 2008 due to over leveraging, increased costs involved in replacing the faulty
blades that it supplied to its US and Portugal clients and slow down in sales due to the
global financial downturn. The liquidity crisis was further compounded by the acquisition
commitments for stake in RE power. Suzlon is looking at various financing options to meet
its commitments. Given these pressures, what are the different alternative finance sources,
which Suzlon can tap in order to come out of the liquidity crisis?

Source: http://www.ibscdc.org/Case_Studies/Finance,%20Accounting%20and%20Control/Finance/FM0007.htm
self assessment

Fill in the blanks:

1. The ................. came into existence in December 1945, and it announced its readiness to
commence exchange transactions in March 1947.
2. At present, the IMF has ................. countries as its members.

3. The IMF is a pool of central bank reserves and ................. which are available to its members
under certain conditions.
4. Under ................., members may use the reserve tranche and the four credit tranches and
three permanent facilities for specific purposes.
5. Changes in the amount of quota of Fund are made after every ................. years.

9.3.3 credit strategy of the fund

credit tranches

Further, a member country can draw up to 100% of balance quota in installments from credit
tranches. The borrowing member has to satisfy the Fund that the viable programme is being
adopted to ensure financial stability. It means the drawings from credit tranches are conditional.
The Fund has gradually raised the limit of borrowing by members to meet the severe balance
of payment problems. Now a member can borrow up to 300 per cent of their new quotas on the
total net use of the Fund’s resources. Drawings made under CCFF, BSAF, SAF, STF and ESAF are
excluded from this limit of 300 per cent.
other credit facilities

Several new credit facilities have been created by the Fund since 1960. These credit facilities
are exclusive of borrowing made under credit tranches and these loans are available for a long
period of time. These credit facilities are:
1. Buffer Stock Financing Facility (BSFF): It was created in 1969. It was created for financing
the commodity buffer stock by member countries. A member can draw up to 30 per cent

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