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Syndicated Loan


(Syndicated Loan)

 

Introduction

Syndicated loan is a form of loan business in which two or more lenders jointly provide loans for one or more borrowers on the same loan terms and with different duties and sign the same loan agreement. Usually, one bank is appointed as the agency bank to manage the loan business on behalf of the syndicate members.

Features

1. Large amount and long term. It can meet borrowers' demand for funds of long term and large amount. It is generally used for new projects loans, large equipment leasing and enterprises' M&A financing in transportation, petrochemical, telecommunication, power and other industries.

2. Less time and effort for financing. It is usually the responsibility of the arranger for doing the preparation work of establishing the syndicate after the borrower and the arranger have agreed on loan terms by negotiation. During implementation of the loans, the borrower does not need to face all members of the syndicate, and relevant withdrawal, repayment of principal with interest and other management work related to the loans shall be fulfilled by the agency bank.

3. Diversified approaches to syndicated loans. The same loan syndications can include many forms of loans, such as fixed-term loans, revolving loans, standby L/C line on requirements of the borrower. Meanwhile, the borrower can also choose RMB, USD, EUR, GBP and other currency or currency portfolio, if needed.

4. It can help borrowers establish a good market image. Successful establishment of the syndicate comes from the participants' full recognition of the borrower's financial and operational performance, by which the borrower can build up their reputation.

5. Differences between syndicated loan and joint loan

Item Syndicated Loan Joint Loan
Inter-bank Relationship All members join together to contact with borrowers through lead and agency banks. All banks, independent from each other, contact with borrowers separately
Approval of Loans All banks make loan decision on the basis of the information memorandum provided by the lead bank All banks collect information separately and go through many rounds of examination.
Loan Contract Unified contract Each bank signs contract with the borrower by itself.
Loan Terms (interest rate, term, guarantee type) Unified conditions Each bank negotiates with the borrower separately with different terms of loans.
Loan Dispersement Funds are collectively transferred in agreed proportions via the agency bank. Loans are dispersed separately with derivative deposits retained at each bank.
Loans Management In the charge of the agency bank Management of its own share of loans by each bank
Recovery of Loan Principal and Interest The agency bank is responsible for the collection of principal and interest according to the contract and transfer of relevant amounts to designated account of each bank in lending proportions Each bank collects principal and interest according to repayment of principal with interest plan separately agreed with its borrowers

Currency

Syndicated loan mainly adopt RMB. Besides it, USD, EUR, GBP and other currencies are also available. Multiple currencies can be used in a single syndicated loan on demand of the borrower.

Term

Three to five years for short-term, seven to ten years for medium-term and 10-20 years for long-term.

Interest Rate

The price of syndicated loan is composed of loan interest and fees.

Lending interest rate shall be set, according to different borrowers, in line with lending interest rate policies of the People's Bank of China, lending interest rate regulations of Bank of China and provisions of the syndicated loan contracts.

Charges

Charges mainly include arrangement fee, underwriting fee, agency fee, commitment fee.

Target Customers

1. Borrowers who require long-term and large-amount loan.

2. Borrowers with high reputation in the industry, whose operation ability as well as financial and technical strength are recognized by most banks.

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 of Lending 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.

Process

1. The sales account manager of Bank of China pays attention to the financing demands of customers;

2. Receive loan information/financing tender documents of customers;

3. Negotiate with customers to draft of the list of loan terms and financing structure;

4. Bank of China is officially appointed by the lead bank and the principal underwriting bank of  syndicated loans;

5. Confirmation of the loan amount by Bank of China;

6. Determination of preparation schedule, organizing strategy and invitation list of syndicates;

7. Prepare loan information memorandum and letter of syndicate invitation, and send out the invitation to relevant financial institutions;

8. Subscription amount undertaken by participants;

9. Confirmation of the final loan limit of each loan syndication participant;

10. Parties agree to sign the loan agreement and guarantee agreement.

11. Sign agreements;

12. Work of the agency 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.

Case

In 2007, in order to acquire Alcal, Rio Tinto Group raised USD 40 billion worth of syndicated loan across the world, Bank of China was the only bank in Asia (except Bank of Japan) that joined the loan syndication as a co-arranger (Lead Arranger) and underwriter. It was the largest syndicated loan project in London market (the fourth largest in the world).

In 2008, Bank of China acted as a arranger, mandated arranger and agency bank during the buyer's USD 592 million worth of syndicated loan for Indonesia Indramayu power plant export project, in which 18 internationally active banks have participated, and the subscribed amount was surpassed by 4.5 times.

In 2008, Bank of China, as the exclusive mandated arranger, successfully prepared the syndicated loan project with USD 600 million for Australia's largest telecom operator, Telstra Corporation, and achieved oversubscription.

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