Credit Syndication

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MEANING AND SCOPE:

Loan syndication or credit syndication refers to the services rendered by

the merchant bankers in arranging and procuring credit from financial

institution , banks, other lending and investment organization for financing

the clients project cost or meeting working capital requirements.

Syndication is an arrangement where a group of banks,

which may not have any other business relationship with the borrower,

participate for a single loan."

"A syndicated facility is a lending facility, defined by a single loanarrangement, in which several or many banks participate."

A syndicated loan is one that is provided by a group of lenders and is

structured, arranged, and administered by one or several commercial banks or

investment banks known as arrangers.

CREDIT/LOAN SYNDICATION

2

G.Venkatachalam M.Com, MBA, M.Phil,(Ph.D)

AP/Finance/JIT
http://en.wikipedia.org/wiki/Commercial_bankshttp://en.wikipedia.org/wiki/Investment_bankshttp://en.wikipedia.org/wiki/Arrangershttp://en.wikipedia.org/wiki/Arrangershttp://en.wikipedia.org/wiki/Investment_bankshttp://en.wikipedia.org/wiki/Investment_bankshttp://en.wikipedia.org/wiki/Investment_bankshttp://en.wikipedia.org/wiki/Commercial_bankshttp://en.wikipedia.org/wiki/Commercial_bankshttp://en.wikipedia.org/wiki/Commercial_banks


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INSTITUTIONAL LENDERS1. IFCI INDUSTRIAL FINANCIAL CORPORATION OF INDIA

2. IDBI INDUSTRIAL DAVELOPMENT BANK OF INDIA

3. ICICI INDUSTIRAL CREDIT AND INVESTMENT

CORPORATION OF INDIA

4. IRBI - INDUSTRIAL RECONSTRUCTION BANK OF INDIA5. SCICI SHIPPING CREDIT AND INVESTMENT COMPANY OF

INDIA

6. SFC STATE FINANCAIL CORPORATION

7. SIDC STATE INDUSTRIAL DAVELOPMENT CORPORATION

8. SIIC - STATE INDUSTRIAL AND INVESTMENT CORPORATION

9. LIC LIFE INSURANCE CORPORATION

10. UTI UNIT TRUST OF INDIA

11. GIC GENERAL INSURANCE CORPORATION OF INDIA

12. CB - COMMERCIAL BANKS

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TYPES OF SYNDICATED LOANS

Loans for setting up new projects

Loans for expansion, modernization, diversification of

projects

Participatory loans

Loans for making investment in corporate securities

(to subscribe public issue, private placements etc.)

Consortium loan

Refinancing loans(IDBI)

Rediscounting loans(IDBI)

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G.Venkatachalam M.Com, MBA,

M.Phil,(Ph.D) AP/Finance/JIT


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CONSORTIUM LOAN ARRANGEMENT

In cases where the requirement of the funds for working capital isquite big and a single bank does not want to advance the limit ,

consortium approach is envisaged and a few banks are

approached to join with the lead bank.

Under such situation , the banks follows thedirectives of the Reserve Bank of India (RBI). It is very essential

for the all banks to be followed the guideline declared by the

{RBI}.

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CREDIT SYNDICATION SERVICES OF MB

Ascertaining promoters details

Ascertaining of Project cost details

Comparison of cost details- Through Benchmark

Identification of funding sources- short, medium, long term

Ascertainment of loan details

Furnishing beneficiary details(Borrower)**

Making application- to lending institutions

Project appraisal**Compliance for loan disbursement**

Documentation and creation of security

Pre- disbursement compliance

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FURNISHING BENEFICIARY DETAILS

General information:-Like name of company, date of incorporation,nature, location of registered office etc.

Promoters information:- Brief account of activities, pastperformance, Certified copies of MOA, Articles of Association ,Audited B/S,

P/L a/c for last five years.

Company information:- brief history of company, expansiondiversification, nature, size and status of project, list of subsidiaries(% ofsubsidiary), Holding (%), BODs, Tax status of companies, Licensed capacity

etc.

Project profile information:- plant capacity, plant process, plant

technical arrangements, plant mgt, plant assets, plant labor etc.Project cost information

Project financing information

Project marketing information

Cash flow information 7




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ROLE OF MERCHANT BANKER FOR PROJECTAPPRAISAL

1. Technical appraisal- assessment of technicaland engineering soundness of the project. supervision

of construction and installation; ability of consultants

and their costs for services

2. Ecological appraisal- taken all possible stepsfor preventing air, water and soil pollution arising out

of the industrial project proposed to be undertaken.

3. Financial appraisal- analyzing the financialviability of the project under consideration. Analysis ofthe need for fixed capital and working capital is also

carried out.

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CONTD.

4. Financial tools- cost of the project as relating to

acquisition of capital assets, interest cost on loansobtained for promotional, organizational, training and

other purposes.

5. Promoters contribution-include own equity,managed equity from special funds such as Risk

Capital/venture Capital Funds or Seed Capital from

IDBI through SFCs, etc. and foreign equity, deposits

contributed by promoters, etc

6. Economical appraisal- The project involvesmaking an analysis of the expected contribution of the

project to the particular sector, besides its contribution

to the development of the national economy. 9




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CONTD.

7. Commercial appraisal- determination ofcommercial viability of the project in terms

of arrangements for buying, transporting

and marketing the product.

8. Managerial appraisal- the evaluation of

effectiveness and efficiency of the

managerial personnel who are vested with

the responsibility of organizingthe available resources of the project.

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COMPLIANCE FOR LOAN DISBURSHMENT

The MB to ensure Compliance of terms and conditions

to have the loan facility disbursed by the bank. Thecompliance is required in respect of the following:

Compliance with the provisions of MOA

Compliance with the provisions of Acts

Compliance with the provisions of loan arrangement

Statutory complaints:-

The companies Act, 1956:

Industries (Development and Regulation) Act, 1951.Foreign Exchange Management Act (FEMA).

Securities Contracts (Regulation) Act, 1956 (SCRA):

FTDRA (Foreign Trade Development and Regulation

Act), 1992 11




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DOCUMENTATION AND CREATION OF SECURITY

The MB provides the following details with regard to the

security for the loan:

First Mortgage and charges- all immovable assets of both presentand future of borrower company.

First charge by way of hypothecation:-

All movables such as stocks of RM, Semi FG, Consumable stores and suchother movables as may agreed

On specific items of immovable items

Personnel guarantee



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STEPS IN LOAN SYNDICATION

1. Preparing the project details and estimating capital requirement of theapplicant.

2. Locating the sources of finance i.e. the lenders or the suppliers of the

funds

3. Selection of the suppliers of the funds. Preliminary discussions with the

suppliers of funds to ascertain possibilities of the getting credit.4. Preparation of the loan application.

5. Filing the loan application with the financial institution/bankand

follow up action.

6. Rendering assistance in project appraisal with the financial

institution/bank.

7. Obtaining sanction letter of intent from the lenders.

8. Assistance in compliance of the terms and condition for the avail of the

loan.

9. Assistance in documentation and creation of security.

10. Assistance in obtaining disbursement of the loan

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WHEN DOES A CORPORATE GO FOR SYNDICATION?

Corporate opt for syndication when: -

The borrower wants to raise large amount of money quicklyand conveniently .

The amount exceeds the exposure limits or appetite of any one

lender .

NEED OF SYNDICATION

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1.Syndicated loans provide borrowers with a more

complete menu of financing options.

2.In effect, the syndication market completes a continuumbetween traditional private bilateral bank loans and

publicly traded bond markets.

3.This has resulted in a more competitive corporate

finance market, which has permitted issuers to achieve

more market-oriented and cost-effective financing.

BENEFITS OF SYNDICATION

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G.Venkatachalam M.Com, MBA, M.Phil,(Ph.D) AP/Finance/JIT


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1. Managing multiple bank relationships is no small

feat. Each bank needs to come to an understanding of the

business and how its financial activities are conducted.

2. A comfort level must be established on both sides of the

transaction, which requires time and effort.

3.Negotiating a document with one bank can take days. Tonegotiate documents with four to five banks separately is

a time-consuming, inefficient task.

DISADVANTAGE OF SYNDICATION

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AP/Finance/JIT

Credit Syndication

Documents

Transcript of Credit Syndication