Supplement to United Banks Syndication of Hypermarkets Ltd Loan (A): Note on Syndicated LendingA syndicated loan is broadly defined as a loan facility that is provided by two or more lenders, on common terms. Each lender who participates in the syndicate makes a commitment to provide a given proportion of the total loan amount and has a right to receive a share of all payments from the borrower. For the convenience of the parties one bank is designated a facility agent. Once the borrower has designed a borrowing strategy and finance structure best suited to its needs and objectives, the sponsor invites bids from one or more lenders to bid for the position of the lead manager. The sponsor then makes its decision by granting its mandate for the lead management position to a bank or a consortium of banks. The project sponsor prepares an information memorandum and presents this, together with the term sheet, to the lead manager who forwards the same to interested banks. Applications are subsequently received from interested banks; and one of three situations may arise at this stage. Firstly, the loan may be fully subscribed, at which stage negotiations commence leading up to the syndication loan agreement being drawn up, and an effective syndication put in place. Secondly, the loan may be oversubscribed, creating the need for participations to be prorated among the interested banks. Alternatively, the loan may be under-subscribed, and the borrower would have to make do with less or the banks in the management group would have to book the balance themselves, thereby exceeding their target takes, if syndication is fully committed.

TYPES OF FACILITY COMMONLY SYNDICATEDTwo types of loan facility are commonly syndicated: term loan facilities and revolving loan facilities.

Term Loan Facility: Under a term loan facility the lenders provide a specified capital sum over a set period of time. Typically, the borrower is allowed a short period after executing the loan, during which time it can draw loans up to a specified maximum facility limit. Repayment may be in installments (in which case the facility is commonly described as "amortizing") or there may be one payment at the end of the facility (in which case the facility is commonly described as "bullet"). Once a term loan has been repaid by the borrower, it cannot be re-drawn.

Revolving Loan Facility A revolving loan facility provides a borrower with a maximum aggregate amount of capital, available over a specified period of time. However, unlike a term loan, the revolving loan facility allows the borrower to drawdown, repay and re-draw loans advanced to it of the available capital during the term of the facility. Each loan is borrowed for a set period of time, usually one, three or six months, after which time it is technically repayable. Repayment of a revolving loan is achieved either by scheduled reductions in the total amount of the facility over time, or by all outstanding loans being repaid on the date of termination. A revolving loan made to refinance another revolving loan which matures on the same date as the drawing of the second revolving loan is known as a "rollover loan", if made in the same currency and drawn by the same borrower as the first revolving loan. The conditions to be satisfied for drawing a rollover loan are typically less onerous than for other loans. A revolving loan facility is a particularly flexible financing tool as it may be drawn by a borrower by way of straightforward loans, but it is also possible to incorporate different types of financial accommodation within it - for example, it is possible to incorporate a letter of credit facility, swing line facility or overdraft facility within the terms of a revolving credit facility. This is often achieved by creating a sublimit within the overall revolving facility, allowing a certain amount of the lenders' commitment to be drawn in the form of these different facilities. STRUCTURE OF A SYNDICATED LOAN

The first is the syndicated loan agreement itself, and more specifically the major terms and conditions that distinguish the syndicated loan agreement from the generic bilateral loan agreement. These are shown to relate almost exclusively to the nature of each participants rights against, and obligations to, the borrower and the other syndicate participants. The second aspect to be addressed is the process by which a syndicated loan is arranged; that is, brought from initial mandate through to execution of the syndicated loan agreement. It is shown that it is in the way they are arranged, and the risks this poses for the parties, that syndicated loans differ most significantly from bilateral loans. The third part is syndication risk. It is allocated either to the borrower or the loan originator, and the manner in which this is done and the consequence for the parties is described. Each part is described in detail in the following part.

Syndication Terms and Conditions In this section a number of standard provisions from syndicated loan agreements are cited and considered.

Lenders Rights and Obligations

(a) The obligations of each Lender are several. Failure by a Lender to perform its obligations does not affect the rights of any other party. No party is responsible for the obligations of another party.b) The rights of each Lender are separate and independent, and any debt arising shall be a separate and independent debt.(c) A party may, except as otherwise stated, separately enforce its rights.

Arrangement of Syndicated Loans The formal appointment by the borrower of an institution or group of institutions to arrange a syndicated loan is called a mandate. The mandate obliges the arranger (also called the agent or lead bank) to provide the borrower with an executable syndicated loan on the terms agreed.

An important task of the arranger is securing these commitments from participants, and this is undertaken in a process known as syndication. Syndication usually commences with the arranger finalizing, sometimes in consultation with the borrower, a list of institutions to be invited to participate in the loan. Syndication is then launched by the arranger when it issues formal invitation letters to each of the selected institutions. An invited institution may respond within a defined time period by agreeing to participate with a particular commitment amount. The invitation and the acceptances are strictly between the arranger and the participant; at no time prior to execution of the syndicated loan agreement does the participant have any direct legal relationship with the borrower. This does not, however, absolve the borrower of responsibility for information given during this time. It is very common for the arranger to provide an information memorandum together with the invitation. This document is usually produced by the arranger and includes information on the proposed loan and the borrower which is designed to help the potential lender in its assessment of the lending opportunity. Information memoranda vary in detail and complexity depending on the nature of the borrower and the loan, but in every case the arranger insists that the borrower take full responsibility for its contents and disclaims any responsibility for itself. The provision of information often goes beyond simply providing an information memorandum. It is also common for the borrower and arranger to present information directly, in what is usually called a road show, to potential participants. And even after the road show, potential participants often seek clarification or additional information.

A very important feature of syndication is that the arranger almost always offers participants a fee, called the participation fee, as an incentive to participate. The participation fee is typically a flat fee expressed as a percentage of the participants final commitment amount. It is paid from the arrangers own account, and so the arranger is free to set or vary the rate of participation fee after mandate without affecting the cost of the loan to the borrower. The major element of the mandate between arranger and borrower is a term sheet, which is a summary of the major terms and conditions of the proposed loan. This mandated term sheet is reproduced in the invitation letter to potential participants. Clearly these summaries of proposed terms and conditions need to be turned into completed legal loan documents for ultimate execution by the parties

Syndication Risk, Best Efforts and Underwriting Looming over all of the arranging process is the presence of syndication risk. This describes the uncertainty, at the time the borrower selects a syndicated loan and the mandate is entered into, as to which institutions will participate in the loan and the amount each will commit. Where the mandate provides for syndication risk to lie with the borrower, it is described as a best efforts mandate. The arranger undertakes to use its best efforts to secure commitments from participants sufficient to meet the borrowers desired loan amount. In this case syndication risk manifests in uncertainty in the total loan amount. Usually, the arranger agrees as part of a best efforts mandate to commit some amount to the loan itself. The greater the amount of the arrangers own commitment, the less that needs to be secured from other lenders and, all else being equal, the less the syndication risk to the borrower. Competition between institutions for arranging mandates tends to ensure that the arranger usually commits a not insignificant amount.

An alternative is for syndication risk to be accepted wholly by the arranger. It can do so by unconditionally underwriting the syndicated loan (and the arranger that does so is now described as the underwriter). In its simplest terms, underwriting is an obligation to lend, as a member of the syndicate, the difference between the total amount committed by other participants and an underwritten loan amount. More specifically, the underwriter underwrites not just the total amount of the syndicated loan, but the loan in that amount and with terms and conditions in accordance with those in the term sheet agreed in the mandate letter. Where the loan is unconditionally underwritten, syndication risk manifests entirely in uncertainty in the amount the underwriter must commit to the loan itself. This amount is called its final holdUnderwriting commitments are rarely unconditional, however, and there are a number of conditions which underwriters impose to allocate some syndication risk back to the borrower. If an event occurs which breaches an underwriting condition, then the underwriter can withdraw and the borrower faces uncertainty in the loan amount. If the underwriting conditions are not breached, then the underwriter must meet its obligations and faces uncertainty in its final hold amount. There are three major underwriting conditions; material adverse change, clear market, commitment expiry.

Material Adverse Change: The first provides that the underwriting commitment is conditional on there being no material adverse change in the financial condition or business of the borrower, or in the international capital markets, which would affect the successful syndication of the loan. Usually referred to as the MAC, this condition applies from the date of the underwriting mandate until completion of syndication. While protection of the underwriter by a MAC is a feature of all normal syndications, it is necessarily given up where it provides a bought deal. In that case the loan is executed and fully funded by the underwriter prior to syndication and so the underwriting commitment cannot be subsequently revoked.

Clear Market: The second major condition prescribes that the borrower must provide a clear market for the underwritten transaction, usually defined to mean that no other loan or securities issue for the borrower or associated company has been launched or is expected to be launched into syndication and which would thus compete with the underwritten loan in the market.

Commitment Expiry: The third standard condition is that the underwriting commitment will expire if the loan is not executed within a defined time period

PARTIES TO SYNDICATED LENDING

The Lead Bank or Agent Theoretically, once the loan agreement is signed, the lead bank is replaced by an Agent, who becomes responsible for the administration of the loan. In practice however, both functions are usually performed by the same bank. The duties of the Agent are usually set out in the loan agreement, and are administered in return for a compensatory fee. These duties may be grouped into contractual and ancillary duties, for the purpose of convenience. The contractual duties of the Agent usually include: ensuring that the borrower has complied with any condition precedent, acting as a paying bank in respect of transfers of funds between the borrower and the syndicate, monitoring the covenants of the loan agreement and taking appropriate action in the case of default by the borrower. The Agent also performs ancillary duties, such as receiving formal notices from the borrower, including borrowers financial statements and reports

The Co-lenders The co-lenders would normally constitute a consortium of banks or other financial institutions who have contributed a percentage share towards the syndicated loan. Once these institutions have advanced their quota of the loan, and the syndicated loan agreement is signed; they usually take a more passive role in the project, relying to a large extent on the competence of the Agent to further their interests

The Syndication Agreement The syndication agreement is a document which establishes the relationship between the project sponsor and the syndicate lenders, on one hand and the between the syndicate lenders inter se. It marks the final stage of the pre-contract syndication process, and once it is signed by all the parties involved, it becomes a binding agreement, enforceable by law. The aim of the agreement is to cater for the special and conflicting needs of all the parties involved.

The syndication process is initiated by the borrower, who appoints a lender through the grant of a mandate to act as the Arranger (also often called a Mandated Lead Arranger) on the deal. There is often more than one Arranger on any transaction but for the purposes of this note we will refer to this role in the singular.

The Arranger is responsible for advising the borrower as to the type of facilities it requires and then negotiating the broad terms of those facilities. By the very nature of this appointment, it is likely that the Arranger will be a lender with which the borrower already has an established relationship, although it does not have to be. At the same time the Arranger is negotiating the terms of the proposed facility, one of the Arrangers appointed by the Borrower to act as Bookrunner also starts to put together a syndicate of banks to provide that facility. Syndication is often done in stages, with an initial group of lenders agreeing to provide a share of the facility. This group of lenders is often referred to as Co-Arranger, although other titles may be used - however, we shall continue to refer to this group of lenders as Co-Arrangers for the purposes of this note. The Co-Arrangers then find more lenders to participate in the facility, who agree to take a share of the Co- Arrangers' commitment.

To facilitate the process of administering the loan on a daily basis, one bank from the syndicate is appointed as Agent. The Agent who is appointed acts as the agent of the lenders not of the borrower and has a number of important functions:

- Point of Contact: (maintaining contact with the borrower and representing the views of the syndicate)

- Monitor: (monitoring the compliance of the borrower with certain terms of the facility)

- Postman and Record-keeper: (it is the agent to whom the borrower is usually required to give notices)

- Paying Agent: (the borrower makes all payments of interest and repayments of principal and any other payments required under the Loan Agreement to the Agent. The Agent passes these monies back to the banks to whom they are due. Similarly the banks advance funds to the borrower through the Agent).

The terms of a syndicated loan agreement empower the Agent to undertake the roles described above in return for a fee. Any decisions of a material nature (for example, the granting of a waiver) must usually be taken by a majority, if not by the whole syndicate. Whilst the Agent carries the standard duties and responsibilities of any agent under English Law, the facility agreement will contain a number of exculpatory provisions to limit the scope of the Agent's relationship with the syndicate lenders and with the borrower. If the syndicated loan is to be secured, a lender from the syndicate is usually appointed to act as Security Trustee to hold the security on trust for the benefit of all the lenders. The duties imposed upon the Security Trustee are typically more extensive than those of an agent. In large syndicates, it is sometimes decided that some decision making power should be delegated to the majority from time to time (often referred to as the 'majority lenders' or 'instructing group'). This group usually consists of members of the syndicate at the relevant time that hold a specified percentage of the total commitments under the facility. By delegating some of the decision-making, the mechanics of the loan are able to work more effectively than if each and every member of the syndicate had to be consulted and subsequently reach unanimous agreement on every request from the borrower.

Lenders Engineer The assigned party is responsible for conducting the monitoring of the project for which the syndication is being approved during its complete implementation phase.

Legal Council It is a third party who performs the duty of the documentation as well studies the legal viability of the project under Syndication