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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
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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_banks7/27/2019 Credit Syndication
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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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AP/Finance/JIT
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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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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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G.Venkatachalam M.Com, MBA, M.Phil,(Ph.D)
AP/Finance/JIT
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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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M.Phil,(Ph.D) AP/Finance/JIT
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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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M.Phil,(Ph.D) AP/Finance/JIT
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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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M.Phil,(Ph.D) AP/Finance/JIT
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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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M.Phil,(Ph.D) AP/Finance/JIT
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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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M.Phil,(Ph.D) AP/Finance/JIT
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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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M.Phil,(Ph.D) AP/Finance/JIT
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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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AP/Finance/JIT
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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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AP/Finance/JIT
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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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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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G.Venkatachalam M.Com, MBA, M.Phil,(Ph.D)
AP/Finance/JIT
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