CONTENTS

1. Meaning and Scope 2. Institutional lenders 3. Steps in loan syndication 4. Loan Syndication for working capital from banks 5. Consortium arrangement 6. Types of Syndication 7. Need of Syndication 8. Benefits of Syndication 9. Disadvantage of Syndication 10. Fee Structure of Financial Institution for loan syndication

LOAN SYNDICATION
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 loan arrangement, 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.

INSTITUTIONAL LENDERS
IFCI INDUSTRIAL FINANCIAL CORPORATION OF INDIA IDBI INDUSTRIAL DAVELOPMENT BANK OF INDIA ICICI INDUSTIRAL CREDIT AND INVESTMENT CORPORATION OF INDIA 4. IRBI - INDUSTRIAL RECONSTRUCTION BANK OF INDIA 5. 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 1. 2. 3.

STEPS IN LOAN SYNDICATION

1. Preparing the project details and estimating capital requirement of the applicant. 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/bank and 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 availment of the loan. 9. Assistance in documentation and creation of security. 10. Assistance in obtaining disbursement of the loan

LOAN SYNDICATION FOR WORKING CAPITAL FROM BANKS

Depends upon
1. 2. 3. 3.1 3.2 3.3 3.4 4. 4.1 4.2 Nature of the finance Types of the bank finance for the working capital Fund based facility Cash credit facility Bill finance Overdraft facility Demand loans Non fund based facility Letter of guarantee Letter of credit

CONSORTIUM ARRANGEMENT
In cases where the requirement of the funds for working capital is quite 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 the directives of the Reserve Bank of India (RBI). It is very essential for the all banks to be followed the guideline declared by the {RBI}.

TYPES OF SYNDICATION

Underwritten deal

Best-efforts syndication

Club deal

An underwritten deal is one for which the arrangers guarantee the entire commitment, then syndicate the loan. If the arrangers cannot fully subscribe the loan, they are forced to absorb the difference, which they may later try to sell to investors.

A best-efforts syndication is one for which the arranger group commits to underwrite less than the entire amount of the loan, leaving the credit to the vicissitudes of the market. If the loan is undersubscribed, the credit may not closeor may need major surgery to clear the market.

A club deal is a smaller loanusually $25-100 million, but as high as $150 millionthat is pre marketed to a group of relationship lenders. The arranger is generally a first among equals, and each lender gets a full cut, or nearly a full cut, of the fees.

NEED OF SYNDICATION
WHEN DOES A CORPORATE GO FOR SYNDICATION? Corporate opt for syndication when: -

The borrower wants to raise large amount of money quickly and conveniently .
The amount exceeds the exposure limits or appetite of any one lender . The borrower does not want to deal with a large number of lenders

BENEFITS OF SYNDICATION
1.Syndicated loans provide borrowers with a more complete menu of financing options. 2.In effect, the syndication market completes a continuum between 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.

DISADVANTAGE OF SYNDICATION
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. To negotiate documents with four to five banks separately is a time-consuming, inefficient task.

FEE STRUCTURE OF FINANCIAL INSTITUTION FOR LOAN SYNDICATION

1. Front end fee
It is taken on the basis of a. In respect of loans under project finance b. In respect of the direct subscription to equity c. In respect of the direct subscription / Private placement of the debentures. d. In respect of the shares/debentures under written. e. In respect of the sanctioned amount of the equipment to be procured /sold {1%} {2.5} {4%) {2.5%} {1%}

FEE STRUCTURE OF FINANCIAL INSTITUTION FOR LOAN SYNDICATION

2.Processsing fee. 3.Appraisal fee. 4. Legal charges. 5. Guarantee commission 6. Loan syndication fee. 7. Fee for financial services.