Project Appraisal-Financing Projects

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Project Appraisal

Financing Projects



Syndication

� "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 loan

arrangement, in which several or many banks participate."

� Sharing of risk by many banks; sharing of total loss-liability

� Lead Bank concept

� Same terms & condition of the all banks



When is Syndication a right

solution?� A BORROWER W ANTS TO RAISE A RELATIVELY

LARGE AMOUNT OF MONEY QUICKLY AND

CONVENIENTLY.

� THE AMOUNT EXCEEDS THE EXPOSURE LIMITS OR APPETITE OF ANY ONE LENDER.

� THE BORROWER DOES NOT W ANT TO DE AL WITH

A LARGE NUMBER O F LENDERS.



Roles within Syndication Process

1. Lead Manager/ Arranger a) This bank is awarded the mandate by the prospective borrower

b) Responsible for placing the debt paper with other banks andensuring that the syndication is fully subscribed

2. Underwriting Banka) The bank that commits to fill the gap in the fundraising

b) May be arranging bank or any other bank

3. Participating Banksa) Banks Lending a portion of the loan to the kitty

b) The bank that follows the lead bank for terms &conditions of the loan



Roles (Contd..)

4. Facility Manager/Agent

a) The one that takes care of the ADMINISTRATIVE ARRANGEMENTS OVERTHE TERM OF THE LOAN (E.G.DISBURSEMENTS,REP AYMENTS,COMPLIANCE).

b) Acts for the banks

c) May be arranging/ underwriting the bank

d) In larger syndication may be Co-arranger andCo-manager



Pricing

� FEES FOR ³FRONT-END ACTIVITIES´-

ARRANGEMENT AND UNDERWRITING FEES.

� INTEREST (MARGIN OVER BASE RATE).

� COMMITMENT FEES FOR AVAILABLE BUTUNDRAWN FUNDS.

� AGENCY FEES -P AYABLE FOR

ADMINISTRATIVE ACTIVITY DURING THE

TERM OF THE LOAN.



Benefits of loan syndications for borrowers

� Syndicated loans provide borrowers with a more complete menu of financing options. In effect, the syndication market completes a

continuum between traditional private bilateral bank loans andpublicly traded bond markets. This has resulted in a morecompetitive corporate finance market, which has permitted issuersto achieve more market-oriented and cost-effective financing.



Syndication - TheE

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Islamic FinancingIslamic banking refers to a system of banking or banking activity that

is consistent with Islamic law (Sharia) principles and guided byIslamic economics. In particular, Islamic law prohibits usury, thecollection and payment of interest, also commonly called riba inIslamic discourse. In addition, Islamic law prohibits investing inbusinesses that are considered unlawful, or haraam (such as

businesses that sell alcohol or pork, or businesses that producemedia such as gossip columns or pornography, which are contraryto Islamic values). In the late 20th century, a number of Islamic banks were created, to cater to this particular banking market.

The basic principle of Islamic Banking is the sharing of the profit andloss rather than collection of Riba (Interest)

The concepts that are used for Islamic Banking are:- Profit Sharing

Joint Venture

Cost plus margin

Leasing



Islamic Banking (contd..)

� In an Islamic mortgage transaction, instead of loaningthe buyer money to purchase the item, a bank might buythe item itself from the seller, and re-sell it to the buyer ata profit, while allowing the buyer to pay the bank ininstallments. However, the fact that it is profit cannot bemade explicit and therefore there are no additionalpenalties for late payment. In order to protect itself against default, the bank asks for strict collateral. Thegoods or land is registered to the name of the buyer fromthe start of the transaction. This arrangement is called

M urabaha. Another approach is , which is similar to .Islamic banks handle loans for vehicles in a similar way(selling the vehicle at a higher-than-market price to thedebtor and then retaining ownership of the vehicle untilthe loan is paid).



Islamic Banking (contd..)� There are several other approaches used in business deals. Islamic banks

lend their money to companies by issuing floating rate interest loans. Thefloating rate of interest is pegged to the company's individual rate of return.Thus the bank's profit on the loan is equal to a certain percentage of thecompany's profits. Once the principal amount of the loan is repaid, theprofit-sharing arrangement is concluded. This practice is called M usharaka.Further, M udaraba is venture capital funding of an entrepreneur who

provides labor while financing is provided by the bank so that both profit andrisk are shared. Such participatory arrangements between capital and labor reflect the Islamic view that the borrower must not bear all the risk/cost of afailure, resulting in a balanced distribution of income and not allowing lender to monopolize the economy.

� And finally, Islamic banking is restricted to Islamically acceptable deals,

which exclude those involving alcohol, pork, gambling, etc. Thus ethicalinvesting is the only acceptable form of investment, and moral purchasing isencouraged. Islamic banking is an example of full-reserve banking, withbanks achieving a 100% reserve ratio.[2] However, in practice, this is notalways the case.[3]



Sharia Advisory Council

� Islamic banks and banking institutions that offer Islamic banking products and services (IBSbanks) are required to establish Shariahadvisory committees/consultants to advise them

and to ensure that the operations and activitiesof the bank comply with Shariah principles.

� In Malaysia, the National Shariah AdvisoryCouncil, which additionally set up at Bank

Negara Malaysia (BNM), advises BNM on theShariah aspects of the operations of theseinstitutions and on their products and services.(See: Islamic banking in Malaysia)



Equator

Principle



Equator Principles - Definition� Project financing, a method of funding in which the lender looks primarily to

the revenues generated by a single project both as the source of repaymentand as security for the exposure, plays an important role in financingdevelopment throughout the world.

� Project financiers may encounter social and environmental issues that are bothcomplex and challenging, particularly with respect to projects in the emergingmarkets.

� The Equator Principles Financial Institutions (EPFIs) have consequently

adopted these Principles in order to ensure that the projects financed aredeveloped in a manner that is socially responsible and reflect soundenvironmental management practices.

� By doing so, negative impacts on project-affected ecosystems andcommunities should be avoided where possible, and if these impacts areunavoidable, they should be reduced, mitigated and/or compensated for appropriately.

� Adoption of and adherence to these Principles offers significant benefits to

funding agencies, borrowers and local stakeholders through borrowers¶engagement with locally affected communities.

� The role as financiers affords us opportunities to promote responsibleenvironmental stewardship and socially responsible development.



Equator Principles

� EPFIs will consider reviewing these Principles fromtime-to-time based on implementation experience,and in order to reflect ongoing learning andemerging good practice.

� TheseP

rinciples are intended to serve as a commonbaseline and framework for the implementation byeach EPFI of its own internal social andenvironmental policies, procedures and standardsrelated to its project financing activities. We will notprovide loans to projects where the borrower will not

or is unable to comply with our respective social andenvironmental policies and procedures thatimplement the Equator Principles.



The 10 Principles

1. Review & categorization

2. Social & Environmental Assessment

3. Applicable Social & Environmental Standards

4. Action Plan & Management Systems5. Consultation & Disclosures

6. Grievance & Mechanism

7. Independent Review

8. Covenants9. Independent Monitoring and Reporting

10. EPFI Reporting



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Project Appraisal-Financing Projects

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