Syndicated Loans
18
Syndicated Loans
Transcript of Syndicated Loans
Syndicated Loans
What is a Syndicated Loan ? A loan provided by two or more banks under
single loan agreement and common terms and conditions
One or more arranging banks (‘Mandated Lead Arrangers’ or ‘MLAs’)
Various roles are divided between the MLA’s :Book Runner Banks Road-Show Organizing Bank/sInformation Memorandum Bank Signing Ceremony BankAgent BankPublicity Bank
Why Syndicated Loan ?
Risk Diversification
Relationship Management
Yield Enhancement
Large Amount can be raised quickly
Types & Structures of Syndicated Loans
Term Loan Revolving Credit Facility Standby Loan or Credit Multi-Currency Secured / Unsecured Multi-Tranche Amortizing / Bullet Repayment Indicative / Underwritten / Best Efforts
How does a Borrower accessSyndicated Loan Market ?
Discuss funding requirements with potential arrangers i.e. Relationship Banks
Ask for Bids – Indicative / Fully Underwritten Offers “(RFP)”
Select the most suitable bid and appoint “Arranger/s”
Assist arranger with syndication process
Closure of Syndication / Signing
Term Sheet
• Borrower : “ABC Ltd.”• Mandated Lead Arrangers: “X” Bank, “Y” Bank, “Z” Bank• Facility : Term Loan Facility• Facility Amount : USD 250 mio • Facility Agent : “Z” Bank• Purpose : To finance capex under RBI guidelines• Availability Period : Three (3) months from signing date• Repayment/Final Maturity: 61 months from drawdown date or the
weighted average draw-down date• Interest Period : 1, 3, or 6 months • Interest Rate : USD LIBOR + Margin • USD LIBOR : Rate on Reuter screen page “LIBO” at 11:00 am London time
Term Sheet (Contd..) Interest Margin : 200 bps per annum Arrangement Fee : 125 bps flat on total facility amount Commitment Fee : Waived Default Interest Rate : 2% above the interest rates on
amounts due and unpaid Facility Agency Fee : USD 10,000 per annum Legal Fees & Other Expenses : Capped at USD 50,000 or Actuals Voluntary Prepayment : On interest reset date with 5 business
days’ prior written notice by borrower Conditions Precedent : M&A, Executed Financing Documents,
Board Resolution, Legal Opinion etc. Representations & Warranties : Status, Power & Authority, No
Litigation, No Default, No Violation of
Law, No material adverse change, etc
Term Sheet (Contd..) Undertakings : Positive and Negative Financial Covenants - Net Worth; - Total Debt / Net Worth; - Total Debt / EBIDTA; - EBIDTA / Interest Expense; - Adjusted EBIDTA / Debt Service; Event of Default : Failure to Pay, Breach of Financial Covenants, Reps & Warranties, Undertakings, Insolvency, Cross-
Default, Material Adverse Change, etc.
Market Flex : Change in terms i.e. structure, amount, pricing prior to closure of syndication Clear Market : No parallel deal in the market Governing Law : English Law
SAMPLE SYNDICATION TIMETABLE
2 - 3weeks 1 week 2 weeks 1 week 1 week
Negotiate term sheet & mandate letter
Mandate awarded
Credit Process
Agree bank list
Prepare information package
Launch of syndication
Arrange Road Shows
Commitments received
Negotiate Documentation
Agree documentation with participants
Signing
Pre-Mandate
Post-Mandate
Syndicated Loan v/s Bond Syndicated Loan
Bond
Relationship
Rating:
Process:
Pricing:
Tenor:
Allows borrower to develop banking relationships and diversify product offerings in future
No rating required
Shorter process targeting bank market and exploiting existing relationship banks
Pricing determined at the time of mandate. May be subject to market flex if agreed by the client.
Shorter, typically up to five years for corporate loans, longer for structured transactions
Limited relationship established with the borrower
Rating required by investors
Involves a lengthy process including regulatory approval and preparation of a prospectus/ offer Document
In a book building scenario final pricing determined just prior to launch.
Longer maturity up to 10 years
Syndicated loan v/s Bond (Contd.)
Syndicated Loan
Bond
Covenants:
Security:
Amortisation
Prepayment:
Investors:
Maintenance based
Charge on Assets
Either amortizing or bulllet maturity.
Yes, with or without penalty
Primarily commercial banks.
Lenient covenants. Financial covenants are incurrence-based (i.e. only tested upon the occurrence of certain events such as further debt raising), rather than maintenance based as in bank debt.
Unsecured
Bullet maturity
Non-callable for a certain period following issuance. Call / Put Options can be incorporated.
Primarily mutual funds and institutional investors
Syndicated Loan Market
Source: Loan Pricing Corporation (LPC)
India has been one of the most active market in Asia-Pacific, accounting for a significant proportion of total loan volume in the region in recent years.
The strong performance in India’s offshore syndicated loan market can be attributed to its rapidly growing economy, with companies going on an expansion drive.
However, ever since the financial crisis emerged, momentum halted and loan volumes declined.
2009: 1H 2009 saw almost a virtual standstill with a mere 4 deals, amounting to only 11% of 2008 volumes.
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Between 2005 to 2007, Asia Pacific (APAC) loan volumes grew at a blistering 20% annually;
2008: The growth abated in 2008 amidst the global financial meltdown. Against the background of high funding costs and widening credit spreads, liquidity across all asset classes disappeared;
2009: 1H 2009 figures indicate that APAC loan volumes remained strong on the back of continued loan issuance out of Japan;
However, loan activity was harder hit in APAC ex Japan. Loan volumes decline as Asia’s export-oriented economies suffer from the trickle down effects of the global slowdown.
APAC Loan volume (2005 to 1H2009)
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
2005 2006 2007 2008 1H 2009
in US$ mil
Japan
APAC ex Jap
India Offshore loan volume (2005 to 1H 2009)
0
5,000
10,000
15,000
20,000
25,000
30,000
2005 2006 2007 2008 1H 2009
0
10
20
30
40
50
60
70
80Total Volume(US$ mil)
# of Deals
in US$ mil
Syndicated Loan Market
Refinancing remains an integral component driving the market.
Refinancing aside, we can see from the chart that Capex spending and Acquisition activities were major contributors to the boom in borrowing activity on the back of India’s strong economic growth.
Notably, Capex and Acquisition financing together made up 62% and 50% of total loan volumes in 2007 and 2008 respectively.
Going into 1H 2009, most deals were done for refinancing, as opposed to new money transactions previously.
Source: Loan Pricing Corporation (LPC) 4
India’s syndicated loan market has seen a gradual increase in the number of investors over the years. With a rapid speed of growth in the country, there were no lack of investors who were willing to pile money into the country.
However, the number of investors declined significantly in 2008 as the world economic situation took a turn. Many investors were spooked by the risk involved in emerging markets and a capital flight took place.
Going forward, with returning confidence in the market, investors may be more willing to take on calculated risks for higher returns, closing deals for the right names and pricing.
India Offshore loan by purpose (2005 to 1H2009)
0
5,000
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15,000
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30,000
2005 2006 2007 2008 1H 2009
Working CapitalTrade finance RefinancingOthersCorp. purposes CAPEXAcquisition
in US$ mil
Investor base in India (2005 to 1H2009)
3090144130102
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140
160
2005 2006 2007 2008 1H 2009
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No
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No. ofinvestorsNo. of deals
General economic conditions have improved, funding costs and risk premiums has declined since the heights seen at end 2008 and beginning of the year.
In line with the brighter macro picture, pricing is gradually tightening in Asia, some of the recent pricing seen in India includes:
IRFC raised 5-year money at low 300s;
Reliance Communications in the market raising 5-year money at sub 400s;
Pricing on Bharti’s US$3 – 4 Bn 5-year amortising (avg life 3.65 years) was believed to at around 315bp, although the deal did not materalise eventually; and
ONGC Videsh is in the market for a 3-year amortising (avg life 2.125 years) and price talk is in the region of mid 100s.
Current Pricing Trend
Source: Loan Pricing Corporation (LPC) 7
Loan Pricing for Asia's Market Leaders
125
150
390
300-350
low 300s
89
185
600
425
106
sub 200s
290
170
35
375375
418
268258
250
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50
100
150
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600
650
Dec
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Jan
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Fe
b-08
Ma
r-08
Ap
r-0
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Ma
y-08
Jun
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Au
g-0
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Se
p-0
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Oct
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Nov
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Dec
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b-09
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r-09
Ap
r-0
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y-09
Jun
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g-0
9
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All-in (bps)
Hong Kong Korea India Malaysia Singapore Indonesia Australia
Deals marked in blue denote previous deal pricing
Australia:Woolworths, 250 bps, 3 yrs (May-09)Woodside, 258 bps, 3 yrs (May-09)Westside, 268 bps, 3 yrs (Aug-09)
Hong Kong:Henderson Land, 125 bps, 3 yrs (Jul-09)Hutchison Telecomm, 150 bps, 1 yr (May-09)
Korea:Woori Bank, 300 - 350 bps, 1 yr (Jul-09)KDB, 390 bps, 1 yr (Apr-09)
India:IRFC, low 300s bps, 5 yrs (Sept-09)Tata Power, 425 bps, 1 yr (Jun-09)Tata Power, 89 bps, avg life 6.5 yrs (Apr-08)Tata Motors, 600 bps, avg life 1.4 yrs, (May-09)Tata Motors, 185 bps, 1 yr (May-08)
Malaysia:Khazanah / Sime Darby, sub 200s bps, 3 yrs (Mar-09)Khazanah, 106 bps, 5 yrs (Jul-08)
Singapore:A-REIT, 290 bps, 3yrs (Aug-09)Suntec REIT, 375 bps, 3 yrs (Apr-09)Fraser & Neave, 170 bps, 3 yrs (Mar-09)Fraser & Neave, 35 bps, 5 yrs (Jan-08)
Indonesia:PT Adaro, 375 bps, avg life 4 yrs (Sept-09)PT Pertamina, 418 bps, avg life 1.875 yrs (Jul-09)
Mizuho Track Record
Top-tier Arranger League Table: Asia - 2007 to 1H 2009
LoanConnector: Syndicated / Club deals on a completed and closed basis, based on pro rata amounts (excludes PF deals and FRN/FRCD - bond style).
Prominent Market Position in Asia.
Consistently ranked among the Top 3 Loan Arrangers in Asia
Top Arranger in Key Asian Markets in 1H 2009. 1st in Japan 1st in Philippines 4th in India 5th in Thailand
8Source: Loan Pricing Corporation (LPC)
Rank BankAmount
(US$ mil) Deals Rank Bank
Amount (US$ mil)
Deals Rank BankAmount
(US$ mil) Deals
1 Mizuho 64,114 698 1 SMBC 98,853 744 1 Mizuho 47,908 3022 SMBC 59,584 643 2 Mizuho 84,040 679 2 SMBC 47,893 3093 MUFJ 57,603 812 3 MUFJ 75,631 755 3 MUFJ 35,800 3534 ANZ 21,508 103 4 Westpac 14,733 93 4 ANZ 4,188 385 Citi 21,305 112 5 ANZ 13,511 113 5 Citi 3,392 206 Westpac 16,026 67 6 CBA 10,337 63 6 BNPP 2,645 157 NAB 14,416 58 7 Citi 10,158 47 7 Westpac 2,463 288 CBA 12,607 67 8 NAB 8,787 54 8 JPM 2,450 59 RBS 12,263 92 9 RBS 7,653 76 9 NAB 2,353 21
10 HSBC 10,975 118 10 SCB 6,422 106 10 BOC 2,332 20
2007 2008 1H 2009
Selected Indian Credentials
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AV Metals Inc, AV Minerals BV
USD 982,000,000
Term Loan Facility
Mandated Lead Arranger / Bookrunner
IndiaOctober 2008
AV Metals Inc, AV Minerals BV
USD 982,000,000
Term Loan Facility
Mandated Lead Arranger / Bookrunner
IndiaOctober 2008
Tata Motors Ltd
USD 1,000,000,000Take Out FinancingMandated Lead Arranger
IndiaMay 2009
Tata Motors Ltd
USD 1,000,000,000Take Out FinancingMandated Lead Arranger
IndiaMay 2009
Reliance Communications Ltd
USD 250,000,000
Term Loan Facility
Mandated Lead Arranger
IndiaIn progress (mandated)
Reliance Communications Ltd
USD 250,000,000
Term Loan Facility
Mandated Lead Arranger
IndiaIn progress (mandated)
Vedanta Resources Plc
USD 1,000,000,000Term Loan FacilityMandated Lead Arranger
IndiaAugust 2008
Vedanta Resources Plc
USD 1,000,000,000Term Loan FacilityMandated Lead Arranger
IndiaAugust 2008
Tata Chemical Ltd
USD 350,000,000 Bridge Loan USD 475,000,000 Term Loan Facility
Mandated Lead Arranger / Bookrunner
IndiaMarch 2008
Tata Chemical Ltd
USD 350,000,000 Bridge Loan USD 475,000,000 Term Loan Facility
Mandated Lead Arranger / Bookrunner
IndiaMarch 2008
Tata Motors Ltd
USD 3,000,000,000Bridge Loan FacilityMandated Lead Arranger / Bookrunner
IndiaMarch 2008
Tata Motors Ltd
USD 3,000,000,000Bridge Loan FacilityMandated Lead Arranger / Bookrunner
IndiaMarch 2008
Vodafone Essar Ltd
JPY 47,000,000,000
Term Loan Facility
Mandated Lead Arranger
IndiaDecember 2008
Vodafone Essar Ltd
JPY 47,000,000,000
Term Loan Facility
Mandated Lead Arranger
IndiaDecember 2008
Reliance Petroleum Ltd
USD 500,000,000
Term Loan Facility
Mandated Lead Arranger
IndiaApril 2008
Reliance Petroleum Ltd
USD 500,000,000
Term Loan Facility
Mandated Lead Arranger
IndiaApril 2008
Wipro Ltd
USD 350,000,000
Term Loan Facility
Mandated Lead Arranger
IndiaMarch 2008
Wipro Ltd
USD 350,000,000
Term Loan Facility
Mandated Lead Arranger
IndiaMarch 2008
Indian Railway Finance Corporation Ltd
USD 450,000,000Term Loan FacilityMandated Lead Arranger
IndiaSeptember 2009
Indian Railway Finance Corporation Ltd
USD 450,000,000Term Loan FacilityMandated Lead Arranger
IndiaSeptember 2009
Thank You
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Disclaimer
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Mizuho does not assume any responsibility for the accuracy or completeness of such information. Mizuho or any of its affiliates has not independently verified such information and the same is being provided by Mizuho for information purposes only. Mizuho shall not have any liability for any representations or warranties (express or implied) contained in, any omissions from, this Presentation Material or any other written or oral communication transmitted to any Recipient Mizuho expressly disclaim any and all liability, which is based on the information and statements or any part thereof contained in (or omitted from) this Proposal.
