Meaning Syndication means joint financing by more than one bank financial institution to the same borrower against

a set of common terms and conditions governed by a common document (or set of documents). It is a good avenue through which large amounts of finance can be raised, while at the same time reducing the risks to each of the syndicated co-lenders. For the conclusion of any syndication deal, lenders would usually enter into a syndicated loan agreement which is also called "Facility Agreement;" each having its needs and objectives which depends on the nature of each transaction. This agreement includes the individual rights, duties, obligations, powers, liabilities and limitations of lenders to avoid or minimise any conflicts of interests or objectives, which may arise. The syndication loan agreement is a document, which establishes the relationship between the project sponsor and the syndicate lenders on one hand, and syndicate lenders on the other. It marks the final stage of the pre-contract syndication process, and once all the parties involved sign it, it becomes a binding agreement, enforceable by law. The aim of the agreement is to cater for the special and conflicting needs of all the parties involved. Syndicated loans have since the 1980s emerged as an attractive method of financing large projects, due to the huge capital and risks associated with such projects. But nowadays, syndication loans are being used not only for big loans but also for small loans for the purpose of diversifying risk portfolio, knowledge sharing and compliance of central bank's guidelines. There are many reasons for syndication financing. First of all, the key objective of syndication financing is to spread and share the credit riskamong all the participating lendersinvestors, which ultimately helps portfolio diversification. There are some other important objectives, i.e. analysing the project viability from various angles by the syndicate members, to satisfy the minimum criteria of diverse group of banks in the syndicated market by the borrower where it is not possible for one bank, enhance the return on assets by arranging the deal and taking a disproportionate amount of the fees from the transaction, to comply central bank's instructions where it has been emphasised on loan syndication by more than one bank in case of large loan. Bangladesh Bank has already emphasised on loan syndication and they have issued circulars on this issue time to time in case of any large loan to diversify the risk and for in-depth individual analysis before financing to any project, to create leadership in the syndicated credit market by the lead arranger. Besides, the opportunity is created for the borrower to reachintroduce more than one bank and performance is tested in all banks instead of one bank through syndication. Syndication financing involves some parties to conclude any syndication deal. Lead arranger (which also called mandated lead arranger or MLA) is the first contact point which has to co-ordinate all the activities at various stages of handling proposal and raising the fund from banksfinancial institutions. The borrower nominates lead arranger. It is a very important factor for a borrower to nominate the lead arranger in light of maintaining long term relationship. It leads to a lead arranger being an agent of the syndication deal, which is common practice. For this reason, it should be an organisation with which the borrower is likely to feel comfortable over the whole loaninvestment period. It is crucial that the MLA has in-depth knowledge of the individual borrower and also on the proposed project or deal. Credibility of the MLA is equally important when dealing with less heavyweight players, who will rely to a much greater extent on the senior members of the syndicate. The lead arranger has the responsibility for much of the selling of the loan to participants. It is worthwhile to mention that the lead arranger is the first port of call for questions and needs to be able to answer them authoritatively in order to head off problems before they arise. This role will be particularly important with respect to syndicate members who do not know the borrower well. When a group of

mandated banks, who act jointly to raise fund from the syndicated market for the borrower is called joint arrangerco-arranger. The second and most important party of any syndication deal is the agent who will preserve all security documents and will do all the administrative and monitoring activities during the tenure of the loan. The role continues till adjustment of the loan. The agent's role is to act as the agent of the participating lenders (not of the borrower) and to co-ordinate and administer all aspects of the credit facility once relevant documentation has been executed. Another party of syndication loan processis a group of banksfinancial institutions committing to some extent for participation in the syndication under lead arranger who is called participating lendersinvestors. An organisation or individual that raises funds in return for contracting into an obligation to repay those funds, together with payment of interest at determinable periods over the life of a facility to the agent is called a borrower. This party of syndication deal is most important as the whole process of syndication is based on this party's requirement. As per recent stress testing result (report published in a daily), twenty-five of 48 banks operating in Bangladesh may slip into trouble in maintaining adequate capital, if top three borrowers defaulted. The test result has worried the regulator, the Bangladesh Bank, as the capital adequacy ratio (CAR) of these 25 banks would fall by at least 2.0 percentage points from required 9.0 per cent of their capital, if these three borrowers defaulted. As per study, if top 10 borrowers defaulted, the CAR would come down by almost half to 4.83 percent of the entire banking industry. In this connection, the Bangladesh Bank again recommends that the banks diversify their loan portfolio to many small borrowers. To resolve the issue, loan syndication process can play a pivotal role for bankers though any bank can take exposure of 15 per cent for funded and 35 per cent for non-funded credit facilities of bank's capital fund (except export financing). Banks can go for syndication for a small or medium size-loan also for getting better result in stress testing and for more compliance to BASEL II. The central bank can form a separate department for monitoring syndication loan and give special emphasis for loan syndication. Immediate attention of the central bank is urgent on this issue and if need be, the Bangladesh Bank can also appoint experts to flourish syndication market and for proper functioning of all phases specially agency function of syndication loan process which is core functional stage of this type of financing. The syndication agreement must adequately balance the interests of the agent and the participating lenders or co-lenders. One of the purposes of the syndication agreement is to appoint the agent, who would be responsible to carry out its duties in the interests of all the lenders involved. This relationship between the agent and the co-lenders and between the agent and the borrower represents the main source of conflict, which although addressed by common law, needs to be defined with considerable precision and dealt with adequately in the syndication agreement. It is the proper time for the government and the central bank to take initiative in this regard as "PPP" is under advance stage for financing large projects where syndication financing is the only way.

Definition of 'Syndicated Loan'

A loan offered by a group of lenders (called a syndicate) who work together to provide funds for a single borrower. The borrower could be a corporation, a large project, or a sovereignty (such as a government). The loan may involve fixed amounts, a credit line, or a combination of the two. Interest rates can be fixed for the term of the loan or floating based on a benchmark rate such as the London Interbank Offered Rate (LIBOR). Typically there is a lead bank or underwriter of the loan, known as the "arranger", "agent", or "lead lender". This lender may be putting up a proportionally bigger share of the loan, or perform duties like dispersing cash flows amongst the other syndicate members and administrative tasks. Also known as a "syndicated bank facility".
The main goal of syndicated lending is to spread the risk of a borrower default across multiple lenders (such as banks) or institutional investors like pensions funds and hedge funds. Because syndicated loans tend to be much larger than standard bank loans, the risk of even one borrower defaulting could cripple a single lender. Syndicated loans are also used in the leveraged buyout community to fund large corporate takeovers with primarily debt funding. Syndicated loans can be made on a "best efforts" basis, which means that if enough investors can't be found, the amount the borrower receives will be lower than originally anticipated. These loans can also be split into dual tranches for banks (who fund standard revolvers or lines of credit) and institutional investors (who fund fixed-rate term loans).

Lead arranger The lead arranger shifts lending to less risky borrowers and is more likely to include security and restrictive covenants in its loans. Controlling for loan amount and borrower fixed effects, the lead arranger syndicates loans less often and finances a larger percentage of the loans that it does syndicate. Other lenders are in general less willing to participate in the lead arranger's syndicates, but this effect is weaker in case of lenders that have done several deals with the lead arranger in the past. The negative consequences of borrower bankruptcy are stronger for small lead arrangers and are weaker in years when several other lead arrangers also suffer borrower bankruptcy. Overall, our findings support the notion of borrower bankruptcy damaging the lead arranger's reputation, and highlight the importance of lead arranger reputation in the loan syndication market. Our findings cannot be fully explained by alternate hypotheses that only emphasize pecuniary losses incurred by the lead arranger or poor investment prospects in the lead arranger's area of specialization.

Differences between syndicated loan and joint loan

Item Inter-bank Relationship Syndicated Loan Joint Loan

All members join together to contact All banks, independent from with borrowers through lead and each other, contact with agency banks. borrowers separately All banks collect information separately and go through many rounds of examination. Each bank signs contract with the borrower by itself. Each bank negotiates with the borrower separately with different terms of loans. Loans are dispersed separately with derivative deposits retained at each bank. Management of its own share of loans by each bank Each bank collects principal and interest according to repayment of principal with interest plan separately agreed with its borrowers

All banks make loan decision on the basis of the information Approval of Loans memorandum provided by the lead bank Loan Contract Loan Terms (interest rate, term, guarantee type) Loan Dispersement Loans Management Unified contract

Unified conditions

Funds are collectively transferred in agreed proportions via the agency bank. In the charge of the agency bank

The agency bank is responsible for the collection of principal and Recovery of Loan interest according to the contract Principal and and transfer of relevant amounts to Interest designated account of each bank in lending proportions

Application Qualifications 1. The borrower should be the legal persons of enterprises and public institutions as well as other economic organizations approved and registered in People's Republic of China. 2. The borrower must be qualified for basic terms and conditions on the borrowers ofLending General Provisions as well as crediting management policy issued by the Bank of China. 3. The borrower shall meet requirements of certain level after credit rating by the Bank of China or other recognized rating agency; 4. The borrower shall be large and medium manufacturing enterprises or project companies with sound operation and finance as well as strong competition in respective industries, which shall be promising in the development. 5. The borrower has established a regular and sound partnership with Bank of China Group. 6. In the event of joining the syndicate set up by other banks, the arranger bank shall be a policy bank, state-owned holding bank or foreign bank with sufficient credit and operational strength. Required Documents 1. Relevant information on the borrower and their Chinese and foreign shareholders and guarantors;

2. Business license and articles of association of the borrower as well as joint venture or cooperation contracts of foreign-funded enterprises and inland associated enterprises; 3. Project proposals, feasibility study reports, engineering estimates and other documents approved by government departments and approval documents, as well as he approval documents on the project provided by administrations of taxation, environmental protection, and customs; 4. Purchase contracts, construction contracts, supply and sale contracts of project equipment. 5. Other documents or information needed by the bank.

Kind Reminder Business of syndicated loan mainly involves arranger, lead bank, manager, participant, agency bank, coordinator and other members, who will perform the duty, enjoy the right and assume the risk according to the contract or their respective lending proportion. Syndicate member banks are divided into three main levels: first, arranger (lead bank); second, manager; third, participants. 1. The arranger, responsible for organization and arrangement of the syndicated loan, is a bank or banks which undertake preparation of syndicate and distribution on commission of customers. The arranger usually will underwrite the whole issue of syndicated loan. 2. The lead bank underwrites a larger share of the syndicated loan, ranking the highest among managers. Usually, the lead bank is also the arranger. 3. The manager refers to the position granted by the lead bank according to loan amount and level undertaken by each bank in the syndicated loan with larger amount and more participants. It's a bank responsible for establishing syndicate during the preparation stage. The managers, forming manager board of the syndicate, are mainly responsible for organizing the examination of loan projects and feasibility of syndicate establishment, discussing loan documents with the lead bank and finally signing the loan contract. 4. Participants refer to the banks who accept invitation of the arranger to join the loan syndicate and provide loans according to shares determined through negotiation. Differences with the managers: Less loan subscription, assume no responsibility for undertaking and other practical preparation of the syndicate. 5. The agency bank is selected by syndicate members and approved by the borrower during the loan period. After signing the loan agreement, the agency bank, on behalf of syndicate members, is responsible for withdrawal, repayment of principal with interest, post-loan management and other issues on loan management as well as communication between syndicate members and the borrower, handling contract breach, etc. in the light of terms of the loan agreement. 6. The coordinator refers to the bank, selected from lead banks, to supervise the whole syndicated loan and to partially undertaken preparation tasks of the bank syndicate. 7. Consultant refers to the bank appointed by the borrower during the syndicated loan period, which provides paid financial advisory service for the borrower to make correct loan decision in face of various quotations and loan terms provided by other banks so as to facilitate all the loan work.