CHAPTER NO: 1INTRODUCTION

1.1 DEFINITIONA syndicated facility is a lending facility, defined by a single loan agreement, in which several or many banks participate.

1.2 MEANINGLoan syndication is a lending process in which a group of lenders provide funds to a single borrower.A syndicated loan (or syndicated bank facility) is a large loan in which a group of banks work together to provide funds for a borrower. There is usually one lead bank (the arranger or agent) that takes a percentage of the loan and syndicates the rest to other banks. A syndicated loan is the opposite of a bilateral loan, which only involves one borrower and one lender (often a bank or financial institution.The cost of a syndicated loan consists of interest and a number of fees-management fees, participation fees, agency fees and underwriting fees when the loan is underwritten by a bank or a group of banks.A loan syndicate refers to the negotiation where borrowers and lenders sit across the table to discuss about the terms and conditions of lending. At present large groups of banks are forming syndicates to huge amount of loans for corporate borrowers.Thus, syndicated loan is extended by a group of banks to a corporate borrower. A syndicated loan is provided by a group of lenders and is structured, arranged and administered by one or several commercial or investment banks known as arrangers.The need for syndication arises as the size of the loan is huge and a single bank cannot bear the whole risk of lending. Also the corporate going for the issue is not aware about the banks which are willing to lend. Hence syndication assumes significance.In the case of syndication the risk gets diversified. The process of syndication starts with an invitation for bids from the borrower. The borrower mentions the funds requirement, currency, tenor etc. the mandate is given to a particular bank or an institution that will take the responsibility of syndicating the loan by arranging for financing the banks.

The businesses that are choosing this option to finance their growth have expanded beyond the fortune 500 companies that were its first users, initially developed to address the needs of huge, acquisition-hungry companies, they have now become a flexible funding source for both mid-sized companies and smaller companies that are on the cusp of moving into mid-sized status. In fact, syndicated loans for as $10 million have become commonplace.

CHAPTER NO: 2CONCEPTUAL DATA

2.1 CONCEPT OF LOAN SYNDICATION(i) Agreement between two or more lenders.(ii) Common Borrower(iii) Common Documentation(iv) Different from un-syndicated or independent borrowings from multiple banks

2.2 FEATURES OF LOAN SYNDICATIONThe syndicated loan is a financing method evolved from bilateral loan. Under the arrangement of syndicated loan, one or several banks (as the arrangers) organize other banks to grant loans to the same borrower under one loan agreement according to agreed terms.Syndicated loans have the following features: Huge amount and long term loans Less pressure on banks and diversified risk. As for the borrower, syndicated loans provide large amounts of loans with longer term and easy operation management (only need to contact with the agent bank). Easier management (compared with loans borrowed separately from different banks) Syndicated loan is more suitable as compared to a simple loan from single or multiple banks The borrower does not have to deal with a large number of lenders Loan syndications are a cost-effective method for participating institutions to diversify their banking books and to exploit any funding advantages relative to agent banks.

2.3 SYNDICATED LOAN SUITABILITYSyndicated loan is more suitable as compared to simple loan from single or multiple banks under following circumstances: A borrower wants to raise a relatively 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

2.4 PARTIES AND THEIR ROLES WITHIN THE SYNDICATION PROCESSThe lead bank and participating banks are the main parties involved in loan syndication. In large loan amounts, sometimes, there are four parties involved, other than the borrower, in the syndication process. These are arranger (lead manager/bank), underwriting bank, participating banks and the facility manager (agent). Their roles are defined as follows:1. Arranger/lead manager:It is a bank which is mandated by the prospective borrower and is responsible for placing the syndicated loan with other banks and ensuring that syndication is fully subscribed. This bank charges arrangement fee for understanding the role of lead manager. Its reputation matters in the success of syndication process as the participating banks would agree or disagree based on the credibility and assessment expertise of this bank. In other words, since the appraisal of the borrower and its proposed venture is primarily carried out by this bank, onus of default is indirectly on this bank. Thus this bank carries reputation risk in the syndication process.

2. Underwriting bank:Syndication is a process of arranging loans, success of which is not guaranteed. Arranger 9lead manager) bank may underwrite to supply the entire remainder (unsubscribed) portion of the desired loan and in such case arranger itself plays the role of underwriting bank. Alternatively a different bank may underwrite (guarantee) the loan or portion (percentage) of the loan. This bank would be called underwriting bank. It may be noted that all the syndicated loans may not have this underwriting arrangement. Risk of underwriting bank is obviously the underwriting risk. It means it will have to carry the credit risk of the larger portion of the loan.

3. Participating banks:These are the banks that participate in the syndication by lending a portion of the total amount required. These banks charge participation fee. These banks carry mostly the normal credit risk i.e. risk of default by the borrower, as like any normal loan. These banks may also be led in to passive approval and complacency risk. It means that these banks may not carry rigorous appraisal of the borrower and his proposed project as it is done by the lead manager and many other participating banks. It is this bankers trust that so many high profile banks cannot be wrong! This may be seen in the light of reputation risk of the lead manager.

4. Facility manager/agent:Facility manager takes care of the administrative arrangements over the term of the (e.g. disbursements, repayments, compliance). It acts for and on behalf of the banks. In many cases the arranging/underwriting bank itself may undertake this role. In larger syndications co-arranger and co-manager may be used.2.5 PROCESS OF SYNDICATIONSyndicated LoansA syndicated loan is a loan extended to a single customer by multiple financial institutions, which are formed into a group, or "syndicate", for that purpose. The same terms and conditions apply to all of the lenders in the syndication, and there is only one loan agreement.Diagram of the Syndication Process The arranger (Mizuho Bank) serves as contact point for all parties, negotiates lending terms, and arranges the syndicate. After the loan agreement is signed, the agent (Mizuho Bank) takes responsibility for handling the various administrative tasks (such as processing loan applications, assigning loan portions, and disbursing principal and interest payments to the other syndicate members).Once the need of credit has been realized by the borrower then it should contact with the bank or money lending institution which could itself lend some money and work as an arranger to form a syndicate for the borrower. To appoint an arranger the borrower sends a Mandate letter (also called as a commitment) letter to the arranger.The content of a Mandate letter is-1. An agreement to underwrite or use best efforts to arrange.

2. Titles of arrangers, commitment amounts, exclusivity provisions.

3. Duties of the lenders and conditions to their obligations.

4. Syndication issues (including preparation of an information memorandum, presentations to potential lenders, clear market provisions, market flex provisions and syndication strategy)

5. Costs cover and indemnity clauses.Term Sheet- Before documentation, the terms related to financing or credit are included in term sheet. It is usually attached and signed with the Mandate Letter. Parties involved, their duties, roles and many important terms are included in it. Project details and estimated Capital requirements- The arrangers have responsibility of making a syndicate and help borrower get the credit. They should be aware of the details of the project. Like-background of the promoters in detail, promoters contribution to the project, details about the project report andprogress of the project.Information Memorandum- Generally prepared by both, the arranger and the borrower and is sent to the potential syndicate members. The arranger assists borrower in drafting this memorandum. They mention the important description about the borrower business (mentioned above) and details of proposed facilities. It is a confidential document and all potential lenders that wish to see it usually sign a confidentiality agreement. The arranger will prepare an information memo (IM) describing the terms of the transactions. The IM typically will include an executive summary, investment considerations, a list of terms and conditions, an industry overview, and a financial model. Because loans are unregistered securities, this will be a confidential offering made only to qualified banks and accredited investors. If the issuer is speculative grade and seeking capital from nonbank investors, the arranger will often prepare a "public" version of the IM This version will be stripped of all confidential material such as management financial projections so that it can be viewed by accounts that operate on the public side of the wall or that want to preserve their ability to buy bonds or stock or other public securities of the particular issuer. Naturally, investors that view materially nonpublic information of a company are disqualified from buying the company's public securities for some period of time. As the IM (or "bank book," in traditional market lingo) is being prepared, the syndicate desk will solicit informal feedback from potential investors on what their appetite for the deal will be and at what price they are willing to invest. Once this intelligence has been gathered, the agent will formally market the deal to potential investors.The executive summary will include a description of the Issuer, an overview of the transaction and rationale, sources and uses, and key financial statistics. Investment considerations will be, basically, management's sales "pitch" for the deal.The list of terms and conditions will be a preliminary term sheet describing the pricing, structure, collateral, covenants, and other terms of the credit (covenants are usually negotiated in detail after the arranger receives investor feedback).The industry overview will be a description of the company's industry and competitive position relative to its industry peers.The financial model will be a detailed model of the issuer's historical, pro forma, and projected financial statements.Most new acquisition-related loans are kicked off at a bank meeting at which potential lenders hear management and the sponsor groups (if there is one) describe what the terms of the loan are and what transaction it backs. Management will provide its vision for the transaction and, most importantly, tell why and how the lenders will be repaid on or ahead of schedule, to addition, investors will be briefed regarding the multiple exit strategies, including second ways out via asset sales. (If it is a small deal or a refinancing instead of a formal meeting, there may be a series of calls or one-on-one meetings with potential investors.)The choice of sources of fund depends upon-1) Nature of the project.2) Estimation of the cost of the project. There are three types of sources of money-Short term finance- When the funds are needed for 1 year. It can be made available by commercial banks, trade credit, public deposits etc.Medium term finance- When funds are needed for 1-5 years. These funds are for buying new assets, working capital or expansion of the business. These are granted by commercial banks and all India Financial Institutions.Long term finance- When funds are required for more than 5 years. Preparation of Loan application- Arranger should make sure that the client company has complied with all the necessary formalities. If there are more than one creditors, the application will be filed with one development finance institution and the company or the arranger will deal with only one institution termed as lead institution . The project will be appraised and sanctioned under single window concept method of dispensing of credit.Syndicated Loan Agreement: The loan agreement in which the detailed terms and conditions of the facility is made available to the borrower. The agents have to follow up the sanction of the loan amount by the lender. The Appraising Institute (who appraises the project) takes the matter to its board of directors or its office may put the proposal with full appraisal note before the sanctioning authority for according necessary sanction. Then the financial institution informs the applicant borrower of such sanction along with the detailed terms and conditional and arrangements of other lenders. The sanction letter mainly coversamount of loan, interest, commitment, chargesecurity for the loanconversion option, repayment of loan etc. 2.6 BENEFITS OF SYNDICATION

Syndicated loans provide borrowers with a more complete menu of financing options. In effect, the syndication market completes a continuum between traditional private bilateral bank loans and publicly traded bond markets. This has resulted in a more competitive corporate finance market, which has permitted issuers to achieve more market-oriented and cost-effective financing. Benefits to each party involved are listed below.

BENEFITS TO THE BORROWER: Ease of dealing with a single bank:If the loan is not syndicated, then the borrower would have to communicate with multiple banks for portion of the loan. Managing multiple bank relationships is difficult and time consuming. Each banks needs to come to an understanding of the borrowers business and its financial activities. A comfort level must be established on both sides of the transaction, which requires time and effort. Negotiating a document with one bank can take days. To negotiate documents with four to five banks separately is a time-consuming, inefficient task. Different maturities of different bank loans must be monitored and serviced. Moreover, multiple lines require an inter-creditor agreement among the banks, which takes additional time to negotiate.Syndicated loan solves all of these problems and provides a single window of negotiations and transactions, thus saving on time and efforts.

Quicker and simple than other ways of raising capital (e.g. issue of bonds or equity): Issue of bonds or equity is a time consuming and expensive process because of regulatory and procedural issues. Loan syndication is just an appraisal and dialogue process. It is faster and simple.

BENEFITS TO THE LEAD BANKS: Fee based income:Lead banks earn fund arrangement fee and other fees without committing capital. This gives them a risk-free source of revenue.

Enhancement of banks reputation:Success of syndication process increases banks credibility and its network with other banks.

Enhancement of banks relationship with the client:Client relationship is strengthened because of single window it offers to arrange the loan. It is an obvious boost to trust and confidence.

BENEFITS TO THE PARTICIPATING BANKS: More lending opportunities:Participating bank gets access to lending opportunities with low marketing/processing costs.

Continuing future business because of relationship:It triggers more opportunities to participate in future syndications as network of the banks establishes a level of comfort with each other.

Pari passu charge advantage:In case the borrower runs in to difficulties, participant banks have equal treatment and equal charge (pari passu charge) on liquidated assets.2.7 DISADVANTAGE OF LOAN SYNDICATION

A disadvantage of a syndicate loan is that the borrower may not form a relationship with single bank (bilateral loan). Need for each bank to understand the business activities Inter creditor agreement required between banks which take additional time Negotiating a document with one bank can take days. To negotiate documents with four to five banks separately is a time consuming inefficient task.

2.8 TYPES OF LOAN SYNDICATIONThere are three types of syndications: An underwritten deal, best-efforts syndication, and a club deal.

1. Underwritten deal:An underwritten deal is one for which the arrangers guarantee the entire commitment, and then syndicate the loan. If the arrangers cannot fully arrange the loan from other banks, they are forced to lend the balance amount of loan, which they may later try to sell to investors.Arrangers underwrite loans for several reasons. First, offering an underwritten loan can be a competitive tool to win mandates. Second, underwritten loans usually require more lucrative fees because the agent is on the hook if potential lenders balk. Of course, with flex-language now common underwriting a deal does not carry the same risk it once did when the pricing was set in stone prior to syndication.

2. Best-efforts syndication:Best-efforts syndication is one for which the arranger group commits to underwrite less than the entire amount of the loan. Thus, this arrangement leaves the credit to the dynamics of the market. Traditionally, best-efforts syndications were used for risky borrowers or for complex transactions. Since the last 1990s, however, best-efforts loans are arranged even for investment-grade transactions.

3. Club deal:A club deal is a smaller loan (usually $25 million to $100 million) that is pre-marketed to a group of relationship lenders. Its a club of lenders i.e. all the lenders are treated as equals. There is no lead manager etc. the arranger is generally a first among equals, and each lender gets a full cut, or nearly a full cut, of the fees.

2.9 STAGES IN SYNDICATIONBroadly there are three stages of loan syndication, viz, pre-mandate phase, placing the loan and disbursement, and post-closure phase.

1. Pre-Mandate Phase:This is initiated by the prospective borrower. It may be with a single bank or it may invite competitive bids from a number of banks. The borrower has to mandate the lead bank, and the underwriting bank, if desired. Once the lead bank is selected, the lead has to undertake the appraisal process. The lead bank needs to identify the needs of the borrower, design an appropriate loan structure, and develop a persuasive credit proposal.

2. Placing The Loan And Disbursement:At this stage, the lead bank can start to coordinate in the marketplace i.e. with the prospective participating banks. This means that the lead bank needs to prepare an information memorandum, prepare a term sheet, prepare legal documentation, approach selected banks and invite participation. A series of negotiations with the borrower are undertaken if prospective participants raise concerns. To conclude this stage the lead bank must achieve closing of the syndication, including signing. If need be, underwriting bank has to sign the balance portion of the loan.Disbursement: loan is disbursed in phases as agreed in the loan contract. Loan is disbursed in no-lien account i.e. a bank account created exclusively to disburse loan. This account and its withdrawals are monitored by the banks. This is to ensure that the loan is used only for the purpose defined in the loan agreement and that the funds are not diverted to any other purpose.

3. Post-Closure Phase:This is monitoring and follow-up phase. It is many times done through an escrow account. Escrow account is the account in which the borrower has to deposit his revenues and the agent ensures that the loan repayment is given due priority before payments to any other parties. Hence, in his stage, the agent handles the day-to=day running of the loan facility.

2.10 THE ROLE FOR LOAN SYNDICATION Risk DiversificationThe standard theory of why banks join a syndicate is risk diversification. In case of default, the bank that spread the risk by joining many syndicates faces a lower risk than one that finances projects individually.

Mobilization of FundsSince mid 1980s, loan syndication has been at the centre stage of financing large projects. In most cases, these projects require high credit facility that may not be mobilized by one bank. Financing of energy, infrastructural project bridges, roads, tunnels, railways and public services like hospitals, prisons, and universities require several billions of dollars which may not be available in one bank. In addition, banks have lending exposure limits to specific sectors. When the exposure limits are high, the solution is to join effort with other banks

Risk ExposureRisk sharing and exposure. Although the risks19 in project finance structure are transferred to parties competent to bear them, there is uncertainty that the project may not perform according to the financing plans and the credit. The residual risk is also borne by all the participating banks. With many banks involved in the syndicate, the risks are shared according the proportions of their contributions to the loan. In case of default, each bank bears a proportion of the risk, which is offset by returns from successful projects. Banks are therefore cautious about the future performance of the loan portfolios.

Information SharingInformation sharing between many participating banks reduces risk exposure. Information exchange is paramount for the success of a loan syndicate. However, information gaps between the members of the syndicate, can lead to agency problems

2.11 DIFFERENT KINDS OF FEES FOR LOANSFeeTypeRemarks

Arrangement feeFront-endPayable to the lead arrangers

Legal feeFront-endFee of legal adviser

Underwriting feeFront-endUnderwritten deals get this fee

Participation feeFront-endReceived by participating banks

Commitment feePer annum, charged on undrawn partLenders capital remains tiedup, once loan is sanctioned. He cannot lend it to anyone else, and hence this fee on unutilized part

Prepayment feeOne-offIf the loan is paid before schedule then bank looses on its interest income. hence this fee.

1. Arrangement fee- Fee paid to the bank for arranging syndication, which includes structuring, syndicating and negotiating the documentation.2. Underwriting fee- Underwriting fees is money collected by underwriters for performing underwriting services.

3. Participation fee- Fee paid to the bank for joining the Syndicate process and is paid according to the commitment of the loan given by the bank. Annual fees1. Commitment fee- It is charged on undrawn element of either a term loan or revolving loan to compensate bank for the contingent liability. It usually half of the margin. Sometimes, it is also according to the level of utilization of the loan.

2. Facility fee It is charged on commercial paper standby or back-stop facilities. It is not like commitment fee and is payable in full amount regardless of the utilization.3. Management fee- Fee paid to the lead manager or arranger.

4. Agent fee- The fee paid to the agent for its services. Details of these fees are usually put in separate side letters to ensure confidentiality. The Loan Agreement should refer to the Fee Letters and when such fees are payable to ensure that any non-payment by the borrower carries the remedies of default set out in the Loan Agreement.

2.12 HOW IT WORKSWhen a project is unusually large or complex, it may exceed the capacity of a single lender. For example, the amount of the loan may be too large, the risks too high, the collateral may be in different locations, or the uses of capital may require special expertise to understand and manage it. In these cases, a financial institution may bring other lenders into the deal. Usually, the loan syndication limits the liability of each lender to its share of the loan interest. In this way, each lender limits its loan amount to a manageable size, and limits its risk exposure. Additionally, each lender may have a collateral interest in a unique or specialized asset from the borrower, such as a piece of equipment.Loan syndications involve a large amount of coordination and negotiation. Typically, loan syndications involve a lead financial institution, or syndicate agent, which organizes and administers the transaction, including repayments, fees, reporting and compliance, and loan monitoring. Often, such transactions require the services of a specialist who syndicates the loan on behalf of the borrower; identifying lenders while negotiating terms and conditions, and even representing the borrower throughout disbursements. Loan syndication fees can be expensive, ranging from 5% to 10% of the loan principal.Suppose you need 100 crore Rupees for an investment project. You go to a bank, they tells you that they cannot finance more than 10 crore Rupees and so you move to a new lender. Here again you find same difficulty. So now you have an option to take loan from multiple lenders. In this case you have to deal with multiple lenders for single investment project. Here borrower can use loan syndication facility. He needs to appoint one Arranger or lead manager. This Bank place the syndicated loan to other banks and makes sure that syndication is fully subscribed. A syndicated facility is a lending facility, defined by a single loan agreement, in which several or many banks can participate.A borrower wants to raise a relatively 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. So what should he do? Even lender doesnt want to miss this opportunity. They can simply use loan syndication facility.By this approach borrower gets desired amount without dealing with multiple lenders while lenders do not miss a profitable loan proposal due to low exposure limit and minimize their risk.

EXAMPLE OF A SIMPLE SYNDICATE STRUCTURE : STARWOODStarwood Hotels & Resorts Worldwide, Inc.$250 millionTwo-year term loan, signed May 30, 2001Loan purpose: General CorporatePricing Margin: LIBOR+125.00 bp; Commitment Fee:17.50bp

Mandated arrangerDeutsche bank AGMandated to originate, structure and syndicate the transaction

BookrunnerFront-endIssues invitations to participate in the syndication, disseminates information to banks and informs the borrower about the process of the syndication

ParticipantsDeutsche bank AGBank one NACitibank NACredit Lyonnais SAUBS AG

Banks providing funds

Administrative agentDeutsche bank AG

Title given to the arranger of a syndicated transaction in the US market

2.13 EXAMPLE OF LOAN SYNDICATION DEALS In 2005 Reliance Port and Terminal, a subsidiary of Reliance Industries, has raised loan for expanding its port facility (Rs 42 billion) to increase imports of crude oil by Reliance Petrochemicals, from 33 million tones to around 66 million tones. A total of 20 banks syndicated the loan with the security trustee being the UTI Bank.Similarly, Indian Rayon raised Rs 750 crore to acquire 50 per cent of AT&T's stake in Idea Cellular. The balance of the AT&T stake, valued at Rs 1,500 crore (Rs 15 billion), will be picked up by the Tatas.The same applied for a loan syndication of Rs 5,000 crore (Rs 50 billion) for Hindalco a few years back and for Rs 1,000 crore (Rs 10 billion) for Bhushan Steel.SBI Caps has been a leading player in the Indian loan syndication market. It has been ranked first in Asia-Pacific for project finance syndication by Thomson Project Finance International. Realizing the huge potential in the loan syndication market, the investment bank tied with IDFC for syndication of debt financing of infrastructure projects in 2006

2.14 LOAN SYNDICATION AS A FINANCIAL SERVICELoan Syndication is a financial service often provided by the merchant banker to his client when the client desires that the merchant banker should arrange and procure fund for his project as well as for his working capital from Financial Institutions, banks and other appropriate related institutions.When a company decides to go ahead with a project based on acceptability of Detailed Project Report the question that hammers his mind is the sources of fund that will satisfy his project implementation. The merchant banker either being a subsidiary of a leading bank or financial institution or being itself a large finance company have more access to the sources of finance than an ordinary businessman. By virtue of their such exposure and access they cater the following services to their clients:

a) Review of Project details and calculate fund requirement of the client.

b) Looking for different sources of such fund. These include promoter's contribution i.e. funds brought in by promoter for investment in the project.

c) Preliminary discussion with the prospective sources of fund. These generally include banks, financial institutions like IFCI, ICICI, IDBI etc. and may be also state level financial institutions.

d) After fixation of probable sources of funds, loan applications in the prescribed format are to be submitted. The filling up of loan application in the prescribed form is a professionalized job requiring high degree of competence.

e) Subsequently, the loan applications duly filled up are to be submitted with respective Banks/Financial institution and due follow up is to be undertaken.

f) Convincing the bank/financial institutions as to the feasibility of the project so that favorable environment is created for sanction of the required loan be it for term loan or for working capital.

g) Arrange for release of sanction letter or letter of intent from the lenders.

h) Arranging for compliances of the terms and conditions before the loan is disbursed. These involve detailed paper work including creation of charge (mortgage etc.) In case of consortium arrangement the detailed paper work is immense which include maintaining cordial liaison at all level of member institutions/banks.

i) Arrangement of disbursement of loan.2.15 MORE BANKS EYE LOAN SYNDICATION SPACE(This article was published in the Business Line print edition dated September 16, 2009)Union Bank of India, Bank of India, Allahabad Bank, Corporation Bank, UCO, and United Bank of India are among the banks entering this spaceTraditional players will now have to chase customers given the increase in competition. K. Ram Kumar Priya Nair Mumbai, Sept. 15 Competition is hotting up in the loan syndication space. State-owned banks such as Union Bank of India, Bank of India, Allahabad Bank, Corporation Bank, UCO, United Bank of India are gradually making inroads into this domain and giving the traditional leaders in the loan syndication market such as SBI Capital Markets, Axis Bank, IDBI Bank, a run for their fee income!Attractive feeThe prospect of earning an attractive fee income by leveraging their corporate relationships is attracting banks to set up loan syndication desks. In the case of plain vanilla loan syndication, a bank earns a fee ranging between 25 and 50 basis points (of the loan amount), depending on the size of the loan. If a bank chooses to underwrite the syndication then it can earn anywhere between 50 basis points and 100 basis points.Unlike the leaders, who routinely syndicate loans in excess of Rs. 1,000 crore for large corporates, the aspiration of the new entrants is modest. They are looking to arrange sub-Rs 1,000 crore loans for mid-size corporates. Given that newer players are entering their turf, past achievements alone will no longer assure business for the traditional leaders in the loan syndication market. They cannot hope for walk-in business and will have to chase customers instead. When the loan requirement of a corporate is large, then its lead bank undertakes to syndicate the loan. The lead bank on its part takes a large credit exposure to the corporate even as it maintains a prudent and manageable credit exposure by roping in other banks which take a portion of the loan on their books.In a bid to diversify its revenue stream, Allahabad Bank set up its syndication desk about two months ago. So far the bank has completed two transactions and another five to six are in the pipeline. Loan syndication is a good source of fee income for banks. Our bank is focusing on mid-segment customers. The average size of these transactions is in the Rs. 100-400 crore range, said Mr K.R. Kamath, Chairman and Managing Director, Allahabad Bank. Corporate customers are more comfortable when the entire loan syndication deal is handled by a single bank rather than approaching several banks themselves. We can give value in terms of convenience and quick delivery of service to corporate customers going in for syndication, Mr Kamath explained.Corporation Bank recently set up a syndication cell in a bid to grow its fee income. We have just made a beginning. We have a couple of credit and marketing officers in the syndication cell actively investigation for business, said a senior bank official. Bank of India is in the process of setting up a dedicated loan syndication desk. A bank official said instead of knocking on the doors of various banks for funds, it will be advantageous for a corporate to assign the mandate in this regard to a single bank. It is easier for a bank, which has already done due diligence on a corporate, to talk to other banks and tie up resources.Union Bank of India has already set up a large syndication desk comprising about 15 credit officers specialising in different sectors of the economy. Most of the credit officers either have engineering-MBA (finance) background or are Chartered Accountants.

Gaining experienceA senior official said the bank has made a beginning by undertaking loan syndication of small ticket size, around Rs. 500 crore.Once it gains requisite experience in the market, the bank plans to arrange big ticket loans for India Inc.The good spirits in the loans syndication business can be measure from the fact that SBI Capital Markets, the investment banking subsidiary of State Bank of India, has helped 24 companies, most of them in the core sector, tie up funds aggregating Rs. 72,500 crore from banks in the first three months of the current financial year. This is against around Rs. 95,000 crore for 54 companies it arranged in the whole of the last financial year.

2.16 SYNDICATED LOANS OFFER LUCRATIVE BUSINESS TO INVESTMENT BANKS(This article was published in the live mint print edition dated April 10, 2013)Disbursed by a group of lenders to spread their risk, syndicated loans have seen a steady rise over the past five years

Apart from providing certainty of closure and protection from market instability, syndicated loans also provide an easy pitch for new banks in the country to start their business.Syndicated loans are steadily finding favour with many debt- burdened Indian firms which want large sums of money to finance new projects but cannot raise funds through equities. Some cannot raise money through bonds for lack of a suitable credit rating.

The income generated from arranging syndicated loans now account for almost half of the countrys investment banking revenue, unlike in major economies where debt capital market and mergers and acquisitions (M&A) account for bulk of the fees.

Disbursed by a group of lenders to spread their risk, syndicated loans have seen a steady rise over the past five years, accounting for almost 50% of Indias investment banking revenue in 2012 despite a weak economy that is eating into the share of other businesses, according to Dealogic, a consultancy and data management firm.

In 2012, loan syndication contributed $343 million (Rs.1,886 crore) towards investment banking revenues, accounting for a 49.5% share against 30% in 2007. Income from syndicated deals have risen almost 60% in five years and 33% over the year-ago period.

In India, underwriting, typically carried out by investment banks, has been one of the highest paying activities in absolute terms but syndication business as a percentage of the overall fee income has also been rising sharply over the years due to a poor equity market.

In the US, share of syndicated loans in the overall fee income is the least compared with other businesses, less than 25% most years. In Japan and Australia, the share of such lending in the total fee income is as low as 11% and 10%, respectively, according to Dealogic.

While fluctuations in income from other businesses, apart from loan syndications, are mainly due to volatility in the equity market, bankers attribute lower credit ratings of Indian firms to be one of the main reasons for higher demand for syndicated loans.

To be sure, firms that avail of syndicate loans also have to pay a higher fee to the bankers. Debt capital market products (primarily bonds) are limited to AAA and AA rated clients in India with very high credit quality, whereas syndicated loans are available to all clients with investment grade rating (BBB and above). Due to the above, the yields in syndicated loans are higher, said Kingshuk Chakraborty, president and managing director, loan syndications at Yes Bank Ltd.Credit rating agency Crisil Ltd, in its report released in April, said its portfolio saw 404 defaults in 2012-13 against 188 in 2011-12. The default rate reached 4.7%, exceed the 10-year high of 3.4% in 2011-12.

Ashwini Kapila, managing director, head of financial institutional group at Barclays India, agreed that offshore debt capital market issues in India have historically been limited to investment grade (largely public sector undertakings), where fees have been low due to intense competition.Pricing plays a crucial role in the bond market overseas. In India, the all-in cost ceiling for borrowing through overseas bonds stands capped at Libor plus 500 basis points, which is within the reach of only those firms who have high ratings, said Manmohan Singh, managing director and head of debt capital markets at RBS India.

One basis point is a hundredth of a percentage point. Libor, or London inter-bank offered rate, is a benchmark for pricing loans.

The method of charging a fee is another reason which makes loan syndication more lucrative for arrangers. There is a higher upfront payment charged by the investment banks on the portion of the loan syndicated.

In a scenario where acquisition and risk appetite among Indian firms is low and equity markets are volatile, the fee earned from these businesses has also seen a sharp drop, said bankers. Sensex, the benchmark equity index of BSE Ltd, rose 25.7% in 2012. It has dropped 6.18% this year.

Fees on equity capital markets are definitely under pressure, not so much on headline (total) number but on distribution among a larger number of banks per transaction. M&A transactions are taking longer to complete. M&A fees have also been low as all large international banks and some strong domestic banks compete in this space, while the opportunities are very limited. said Kapila of Barclays.

The share of equity capital market in the total investment banking revenue dropped from 46% to 12% since 2007 and from $503 million to $85 million in 2012.

Companies also find syndicated loans an easier way of raising funds. Syndicated facilities bring businesses the lowest transaction costs in aggregate and spare companies the time and effort of negotiating individually with each bank, Chakraborty of Yes Bank said, adding it helps companies get visibility in the market.

Kapila of Barclays pointed out that certainty of funds is assured from the anchor banks. Loan syndication also helps borrowers diversify their funding sources as new banks join the general syndication. An added advantage is that a successful syndicated loan makes the loan market a viable and reliable source of future fund raising for borrowers, he said.Apart from providing certainty of closure and protection from market volatility, syndicated loans also provide an easy pitch for new banks in the country to start their business.

According to Mahendren Moodley, chief executive and country head of FirstRand Bank in India, a global bank with strong distribution capabilities across key geographies may actually start with syndicated loans as one of the products.

In September, Tata Steel Ltd received approval for a Rs.35,000 crore loan from a consortium of banks led by State Bank of India, making it one of the largest exposures taken by Indian banks in recent times. The loan is for the companys upcoming six-million tonne per annum (mtpa) steel plant in Kalinganagar in Orissa. State Banks investment banking arm SBI Capital Markets Ltd or SBI Caps is the arranger for the loan.

ONGC Petro Additions Ltd, a venture of ONGC and GAIL (India) Ltd, achieved financial closure in January. In this case too, SBI Caps was the sole financial advisor and arranger for the transaction.

Reliance Industries Ltd signed a syndicated loan facility worth $1.5 billion with a group of 28 international and Indian banks in October. The mandated lead arrangers and bookrunners for the deal include ANZ India, Bank of America Merrill Lynch, Bank of Nova Scotia and Bank of Tokyo-Mitsubishi UFJ, among others.

2.17 TATA STEEL LAUNCHES $750 MN SYNDICATED LOAN IN TAIPEI (This article was published in the business standard dated Aug 25, 2006) Tata Steel launched its syndicated term loan of $750 million at a road show in Taipei today. Company officials said the fund raising had been fully subscribed to by participating banks including lead arrangers. The company has mandated - Standard Chartered Bank, ABN-AMRO Bank NV, Citigroup Global Markets Singapore Pte Ltd., Calyon, Bank of Tokyo-Mitsubishi UFJ Ltd., First Commercial Bank Ltd., Maybank, Mizhuo Corporate Bank and Sumitomo Mitsui Banking Corporation Ltd - as lead arrangers to raise the loan. The loan has a seven-year door-to-door maturity with an all-in pricing at 54 basis points over Libor. S&P has reaffirmed a corporate credit rating of BBB for Tata Steel and assigned the same to the loan as well. Apart from the current fund raising, Tata Steel has raised $100 million from IFC, $300 million as part of an IFC-led syndication and Japanese yen equivalent of $500 million syndicated loan facility in the last 18 months. The funds raised under the loan would be deployed towards Tata Steel's expansion programme and any future acquisitions. As part of the future expansion, Tata Steel plans to establish three greenfield facilities in Orissa, Chhattisgarh and Jharkhand, with a total capacity of 23 million tonne. The company had earlier said that greenfield projects and other strategic acquisition opportunities could see Tata Steel making a total investment of Rs 70,000 crore over the next decade

2.18 RELIANCE, BHARTI TO RAISE CAPITAL VIA OVERSEAS LOAN ISSUES(This article was published in the Economic Times print edition dated Apr 18, 2004)Reliance Infocomm is for the first time, hitting the overseas market with a $250m syndicated loan issue of around five years. Incidentally, another telecom company, Bharti Tele-Ventures is also in the process of raising $100m through a similar route.According to sources, the lead managers for the Reliance Info issue are ANZ Investment Bank, ICICI Bank, Development Bank of Singapore and ABN Amro Bank. The deal will be priced at more than 150 basis points above Libor and is likely to hit the market by the end of next month. When contacted, the company spokesperson said, "We do not comment on speculation.''However, sources close to Reliance said, "We are open to raising debt provided we get a good rate." The government had earlier this year, granted automatic clearance for companies to raise up to $500m of external commercial borrowings. Prior to the government announcement, Reliance had applied for permission to raise $750m of external debt.Meanwhile, Bharti is hitting the market with a $100m issue next week for a tenure of around five-and-a-half years. Barclays Capital and DBS are the lead managers for this loan syndication. When contacted, Bharti sources said, "We are planning to raise a syndicated loan of around $100m, but have not set a date for it as yet. This is part of the same debt raising that we had announced earlier."Bharti recently raised around $115m by way of foreign currency convertible bonds (FCCBs) and plans to raise around $300m more of external debt. . The total debt would be to the tune of $600m, which will be used for the company's capital expenditure.Market sources said that since Bharti had raised FCCBs at zero coupon, Reliance too may like to raise it at the same rate. Bankers are putting together an information memorandum on Reliance Info so that investing banks have better information on the company regarding subscriber numbers, projections, financials, strategies, position of competitors, etc.The company already achieved profit on a net profit basis in the last financial.Reliance Infocomm has also raised Rs 5,000 crore through a syndication process for a 10 year loan at around 8%. Around 9-10 banks, including State Bank of India, Allahabad Bank, ICICI, IDBI Bank, Bank of India, Corporation Bank and Union Bank of India have taken tranches of about Rs 300-600 crore. Sources revealed that the amount can exceed Rs 5,000 crore as and when it (Reliance Infocomm) actually drew the amount from the consortium. Reliance Infocomm has already invested Rs 18,000 crore to lay over 60,000 km terabit capacity optic fibre network covering over 600 cities. The company is expected to utilise funds raised through the new issues to expand this network, which will eventually cover 116,000 km to connect 2,500 towns and cities within the countryReliance Infocomm gets $300 Million syndicated loan largest international debt to be raised by any Indian telecom company

In the largest debt raising exercise in the international syndication market by any Indian telecom company, the country's largest mobile services provider, Reliance Infocomm Limited (RIC) has successfully concluded a syndicated term loan facility of $300 million, lead managed by ABN Amro NV, Australia and New Zealand Banking Group, Bank of Baroda, BNP Paribas, DBS Bank, ICICI Bank, Mashreqbank and Rabobank. The loan has a final maturity period of seven years and the facility has recently been signed in Mumbai. Commenting on the transaction, Jagannatha Kumar, Head, Project Finance at Reliance Infocomm, said, "The transaction, the first ever cross-border borrowing by Reliance Infocomm, and the largest debt raising in the international syndication market by an Indian Telecom company, has received an overwhelming response." "The success of this transaction is a testimony to the faith reposed by the international banking community in the operating and financial strengths of Reliance Infocomm and the unparalleled track record of the Reliance group. We are especially delighted that the transaction attracted a diverse group of international banks, with a wide geographic representation," he added. Reliance Infocomm is the leading integrated telecom services provider in India with a subscriber base of over 8.5 million, and is in the process of setting up the largest telecom projects by any new entrant in the world at a cost of US$ 5.5 billion. Reliance Infocomm has established a pan-India, high capacity, integrated (wireless and wire-line) and convergent (voice, data and video) digital network, to offer services spanning the entire Infocomm value chain - infrastructure, services for enterprises and individuals, applications and consulting. The Reliance Group, founded by Shri Dhirubhai H. Ambani (1932-2002), is India's largest business house with total revenues of over Rs 99,000 crore (US$ 22.6 billion), cash profit of Rs 12,500 crore (US$ 2.8 billion), net profit of Rs 6,200 crore (US$ 1.4 billion) and exports of Rs 15,900 crore (US$ 3.6 billion).

2.19 YES BANK PLANS TO RAMP UP LOAN SYNDICATION MARKET(This article was published in the financial express)

With a major focus in core infrastructure sector, new generation private sector lender YES Bank is expanding its exposure in the syndicated loan market in 2010-11. The bank intends to originate loan syndication worth Rs 20,000 crore, where the bank itself will contribute around Rs 4,000-5,000 crore. The bank had disbursed Rs 2,500 crore out of Rs 8,000-crore loan syndication in 2009-10. We are at an advanced stage of participating in syndicated-cum-underwriting loans for projects relating to road, ports, hospital building, power and waste treatment. Those loans wherein we will play the role of a lead banker will be raised by a consortium of public sector banks mostly and partly with financial institutions and foreign banks, Somak Ghosh, group president (corporate finance & development banking) of YES Bank, told FE. For example, the bank is expected to disburse Rs 400 crore out of Rs 1,600 crore loan syndication for a highway project in eastern India. Similarly, it would soon fund some hospital projects in South India, one big thermal power project in Orissa and waste water treatment projects in Maharashtra, Gujarat, and Rajasthan. Ghosh, however, refused to divulge details of the financial arrangement as those are yet to be finalised. The bank charge interest rates of 10-12% per annum depending on individual profile of the borrower. In 2009-10, the bank had registered a whopping rise in its book growth by 78.9% to Rs 22,193.1 crore. Of its total loan book, 90% accounts for wholesale banking, according to Ghosh. We are willing to lend more there, he said. Moreover, the bank plans to close its first tranche of raising $80 million for its recently launched private equity fund christened as Clean Technology Fund, which has a mandate of $200 million.

After closing the first tranche, we will start investing in companies related to energy efficiency, environment issues and waste water treatment. In next 18 months, we will complete the full fund-raising, said Ghosh. With a capital adequacy ratio of 20%, the bank does not have any immediate plan to raise any equity capital. However, it will continue to raise tier-II hybrid form of capital from time to time in proportion to their expansion plans. YES Bank has set a target of 40-45% credit growth.

CHAPTER NO: 3CONCLUSION

CONCLUSION Loan syndication plays a significant role in financing projects.

Most projects that require large sums of funds are easily financed through syndication mechanism, otherwise it would be difficult for a single bank to mobilise the funds.

Importantly, risk sharing reduces risk exposure to individual lenders and this reduces the cost of debt.

However for loan syndication to succeed, the credit agreement should be designed to clearly deal with the respective needs of the counterparties to the syndicate.

Loan syndications can be a useful tool for banks to maintain a balanced portfolio of loan assets among a variety of industries.

If one loan is too large, it may overweight the bank's portfolio. Therefore, banks may engage in a syndication to accommodate a loan and keep its portfolio in balance.At the same time, loan syndications may incur a large expense to the borrower.

While the syndication fee is usually financed, the burden of repaying the loan and syndication fee is shouldered ultimately by the borrower

CHAPTER NO: 4APPENDIX

4.1 BIBLIOGRAPHY Financial services publication S Parveen International banking publication Vipul

4.2 WEBLIOGRAPHY www.articles.economictimes.indiatimes.com www.financialexpress.com www.dyutita.blogspot.com www.livemint.com www.thehindubusinessline.com www.wap.business-standard.com