Practices by Local Financial Institutions
BEGINNING OF SYNDICATED LOAN
The Syndicated Financing in Bangladesh was started in the late 90’s by Standard Chartered Bank (SCB), Industrial Promotion and Development Company of Bangladesh (IPDC) & Industrial Development and Leasing Corporation (IDLC). The foreign banks are pioneer in launching local currency syndicated financing in Bangladesh. Then Grindlays Bank back in the year 1998 played the mainstream role to popularize the concept of syndicate financing inviting local banks and concluded the deal successfully. Subsequently Standard Chartered also played effective role in popularizing the concept of syndicated financing. The first ever syndication was completed by SCB, they financed Pacific Bangladesh Telecom Limited at 1998. Although prior to that IPDC was financing some projects with some other financial institutions, but they called that process “Co-Financing”. In fact, Syndicated financing is not very new in Bangladesh. Previously different financial institutions to finance different types of projects practiced consortium financing, also known as group financing.
Earlier, Lead Arranger for any syndication deal denotes only Foreign Banks. Now, the local Banks are coming with this biggest noble task of arranger for smooth industrialization of Bangladesh. Now-a-days local banks want to lead this market proactively, for this reason they set different types of policies and strategies with regard to Bangladesh Bank regulation. For this they are going to develop their inter-relationship by arranging and participating small to large syndicated loan.
OBJECTIVES OF SYNDICATION BY LOCAL FINANCIAL INSTITUTION
· To spread and share the credit risk among all the participating banks.
· Enhance the return on assets by arranging the deal and taking a disproportionate amount of the fees from the transaction.
· Analyzing the project viability from various angles by the syndicate members.
· To comply central bank’s instruction where it has been emphasized on loan syndication by more than one bank in case of large loan.
· To create leadership in the syndicated credit market by the Lead Arranger.
· To satisfy the minimum criteria of diverse group of banks in the syndicated market by the borrower where it was not possible for one bank.
· Opportunity is created for the borrower to reach/introduce more than one bank and performance is tested in all banks instead of one bank through syndication.
TYPES OF FACILITY THROUGH SYNDICATION IN BANGLADESH
The syndicated credit market uses many instruments and has developed a stream of new products to meet borrower needs and to take advantage of changes in the markets. Out of many instruments syndicated term loan is most popular in our country. At present, many non-funded facilities are being provided through syndication.
DURATION OF SYNDICATED LOAN IN BANGLADESH
A syndication loan is usually of medium-term maturity, i.e., 3 (three) to 10 (ten) years, although transaction can be arranged with a maturity as short as six months or as long as 25 (twenty-five) years.
There is no specific regulation in our country for operating Syndicated Loans by financial institutions. Syndicated Loans is being governed by the large loan policy given by the Bangladesh Bank. Bangladesh Bank operates it time to time by issuing some circular. They are mentioned here.
BRPD circular No. -05
BRPD circular No. -05 issued on 9th April 2005 relating to large loan about Single Borrower Exposure. According to this circular, Loan sanctioned to any individual or enterprise or any organization of a group amounting to 10% or more of a bank’s total capital shall be considered as large loan. The contents of this circular are:
1. As a result of increase in capital of almost all the banks, now it has been decided to reduce the single borrower exposure limit from 50% to 35%. Thus-
a) The total outstanding financing facilities by a bank to any single person or enterprise or organization of a group shall not at any point of time exceed 35% of the bank’s total capital subject to the condition that the maximum outstanding against fund based financing facilities (funded facilities) do not exceed 15% of the total capital as per sectioin-27 of the Bank Company Act, 1991.
b) Non-funded credit facilities, e.g. letter of credit, guarantee etc. can be provided to a single large borrower. But under no circumstances, the total amount of the funded and non-funded credit facilities shall exceed 35% of a bank’s total capital.
c) In case of export sector single borrower exposure limit shall remain unchanged at 50% of the bank’s total capital. But funded facilities in case of export credit shall also not exceed 15% of the total capital.
2. The banks will be able to sanction large loans as per the following limits set against their respective classified loans:
|Rate of net classified loans||The highest rate fixed for large loan against bank’s total loans & advances|
|More than 5% but upto 10%||52%|
|More than 10% but upto 15%||48%|
|More than 15% but upto 20%||44%|
|More than 20%||40%|
4. A public limited company, which has 50% or more public shareholdings, shall not be considered as an enterprise/organization of any group.
a) In the cases of credit facilities provided against government guarantees and AAA rated Multilateral Development Banks (MDBs) guarantee, the aforementioned restrictions shall not be applicable. (Included by BRPD Circular No. 02 dated February 19, 2007)
b) In the cases of loans backed by cash and encashable securities (e.g. FDR), the actual lending facilities shall be determined by deducting the amount of such securities from the outstanding balance of the loans.
5. Banks should collect the large loan information on their borrowers form Credit Information Bureau (CIB) of Bangladesh Bank before sanctioning renewing or rescheduling large loans in order to ensure that credit facilities are not being provided to defaulters.
6. Banks must perform Lending Risk Analysis (LRA) before sanctioning or renewing large loans. If the rating of an LRA turns out to be “marginal”, a bank shall not sanction the large loan, but it can consider renewal of an existing large loan taking into account other favorable, conditions and factors. However if the result of an LRA is unsatisfactory, neither sanction nor renewal of large loans can be considered.
7. While sanctioning or renewing of large loan, a bank should judge its borrowers overall debt repayment capacity taking into consideration the borrower’s liabilities with other banks and financial institutions.
8. A banks shall examine is borrower’s Cash Flow Statement, Audited Balance Sheet, Income Statement and other financial statements to make sure that its borrower has the ability to repay the loan.
9. Sanctioning, renewing or rescheduling of large loans should be approved by the Board of Directors in case of local banks. Such decisions should be taken by the Chief Executives in case of foreign banks. However, while approving proposals of large loans, among other things, compliance with the above guidelines must be ensured.
10. For the loans that have already been disbursed with the approval of Bangladesh Bank, and that have exceeded the limit as mentioned in point 1, banks shall take necessary steps to bring down the loan amount within the specified limit.
11. Banks shall submit the monthly statement of large loan in the specified format to Department of Off-site Supervision of Bangladesh Bank within 10 days after the end of respective month.
Rescheduling of Loans:
1. Application for first rescheduling will be considered only after cash payment of at least 15% of the overdue installments or 10% of the total outstanding amount of loan whichever is less.
2. Rescheduling application for the second time will be considered after cash payment of minimum 30% of the overdue installments or 20% of the total outstanding amount of loan whichever is less.
3. Application for rescheduling for more than two times will be considered after cash payment of minimum 50% of the overdue installments or 30% of the total outstanding amount of loan whichever is less.
BRPD Circular No. 13
For good governance of Syndicated Loan Bangladesh Bank issued BRPD Circular No. 13 dated December 23, 2002 relating to Large Loan Restructuring Scheme (LLRS). According to this circular a two tier committee will be constituted for implementation of the LLRS. The constitution and functions of the committees will be as under:
i. The Standing Committee will be constituted comprising the Chief Executives of all banks participating in LLRS. All banks working in the country shall participate in the scheme in their own interest and shall become members of the Committee. The Committee will be a self empowered body, which will lay down policies and guidelines for restructuring and rescheduling of large loans and monitor the performance of the scheme.
ii. Deputy Governor in charge of the Department of Off-site Supervision (DOS) of Bangladesh Bank shall act as Chairman of the Committee. The committee shall meet at least once in every three months.
iii. The committee may decide to have a permanent secretariat and to recruit whole time officers/staff for the secretariat. It will also lay down policies for sharing administrative and other expenses by the participating banks.
i. There shall be an Inter-Bank Committee comprising the financing banks. In case of consortium loans the Chief Executive of the lead bank and in other cases the Chief Executive of largest financing bank shall be the Chairman of the Inter-Bank Committee.
ii. The Committee shall examine the viability of restructuring & rescheduling proposals of the loans and shall approve the proposals in appropriate cases. The committee may, if necessary, engage external consultants for evaluation of restructuring proposals. For the purpose, it may also take the help of Credit Rating Agencies working in the country. If any proposal for restructuring is not found suitable, the Committee will advise the banks to initiate appropriate legal steps for recovery of the debt.
PARTIES OF SYNDICATED LOAN IN BANGLADESH
Lead Bank or Arranger has to co-ordinate all the activities at various stages of handling proposal and raising the fund from Banks/Financial Institutions.
Lead Arranger: Captain of Loan Syndication Boat
ð The borrower nominates lead Bank. It is very important factor for a borrower to nominate Lead Bank/Arranger in the light of maintaining long term relationship. It leads to a Lead Bank being an Agent Bank of syndication, which is common practice. For this reason, it should be an organization with which the borrower is likely to feel comfortable over the whole loan period.
ð After analyzing all the relevant aspects of risks, Lead Bank will help the borrower by taking proper steps and will set a plan to raise the fund from the Banks/FIs to set up the proposed project. A Time Schedule to be prepared by the Lead Arranger to close the syndication deal (Format is enclosed in annexure).
ð A Good professional arranger will always be able to add something to a borrower’s own deliberations. It should be able to suggest amendments and enhancements, which will make it easier for a syndicate to take up the loan without compromising its essential elements.
ð It is very important that the lead bank has an in-depth knowledge of the individual borrower. This applies not only to the particular company but also to the wider environment in which it works, the economic pressures, the competitive environment and so on.
ð As part of the process of selecting a potential syndicate leader it will be necessary to decide whether it can sell this deal to the sort of syndicate that is desired. If a high-quality group is the aim, then a high level of past performance in similar transactions will be required in order to encourage other experienced banks into the syndicate.
ð Credibility can be equally important when dealing with less heavyweight players, who will rely to a much greater extent on the senior members of the syndicate.
ð The Lead Bank/Arranger has the responsibility for much of the selling of the loan to participants.
ð The Lead Bank will be the first port of call for questions and needs to be able to answer them authoritatively in order to head off problems and sensitivities before they arise. This role will be particularly important with respect to syndicate members who do not know the borrower particularly well.
ð Arranger earns at a rate of 0.50% – 1.50% of the total loan amount as the arrangement fee from the borrower if the transaction approved. This rate should be undisclosed to the other participants of the syndicate.
ð Agent will preserve all security documents and will do all the administrative & monitoring activities tenure of the loan.
ð The agent bank’s role is to act as the agent for the banks (not for the borrower) and to co-ordinate and administer all aspects of the credit facility once relevant documentation has been executed.
ð The activities of agent bank include the disbursement of monies from the syndicate to the borrower, after satisfaction of relevant conditions precedent, and will also cover collection of monies, essentially commitment fees, front-end fees, interest and repayments of principal, from the borrower on behalf of the participating banks.
ð The agent will also be responsible for transmitting any post-closing waivers or amendments requested by the borrower and negotiating them with the syndicate banks.
ð The responsibilities and role of the agent in cases an event of default has occurred.
ð Inform the participating banks regarding progress of the project time to time as per clause of facility agreement.
ð The Agent will send the audited financial statements regularly as per clause of facility agreement.
ð The Agent will call a review meeting time to time where the borrowers and the representatives of the participating banks will be present.
Participating Banks/Financial Institutions (FIs):
A group of Banks/FIs committing to some extent for participation in the syndication under lead arranger;
A group of mandated banks who will act jointly to raise the fund from the syndicated market for the borrower.
A senior underwriter or a Bank/FI committing to the highest level of participation;
A second tier underwriter or a bank committing to the second level of participation;
A Bank committing to a third level of participation.
An institution or individual that arises 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.
PRACTICES OF SYNDICATED LOAN IN BANGLADESH
Each syndication is identical. The market changes every day. Many intangibles influence the structure and pricing of a credit, including:
Ø The experience and depth of a company’s management team.
Ø Trends in the industry and market, and
Ø Financial trends within a company.
Agent will explain the influence of each of these factors and help gauge their impact on transaction.
The process can be as simple as sending out public information and requesting commitments. Or it can be complex, involving extensive due diligence, the preparation of a complete syndication offering memorandum (including financial projections), and a formal bank presentation.
The more complex the process, the longer it takes. Some syndications take as little as three weeks, others as long as seven months. Generally, the better a company knows its banks, the quicker the process will be.
Briefly, bank loan syndication can be considered as a sequential process, which can be separated into three phases. During the pre-mandated phase, the borrower solicits competitive offers to arrange and manage the syndication with one or more banks. From the proposals it receives, the borrower chooses one or more arrangers that are mandated to form a syndicate4, and negotiates a preliminary loan agreement. During the post-mandated phase, the arranger begins the syndication process, which involves drafting a preliminary loan contract and preparing a documentation package for the potential syndicate members, called an information memorandum, containing information about borrower creditworthiness and the loan terms.
A Roadshow is then organized to present and discuss the content of the memorandum, as well as to announce closing fees and to establish a timetable for commitments and closing. After the Roadshow, the arranger makes formal invitations to potential participants and determines the allocation given to each participant. The third and last phase takes place after completion. The loan becomes operational, binding the borrower and the syndicate members by the debt contract. Details of the process practicing in Bangladesh discussed here.
184.108.40.206 Pre-Mandate Phase:
1. Selection/Identification of Borrower for Syndication;
2. Build-up continuous relationship with the Borrower;
3. Round Table discussion with the borrower in Loan Syndication Unit of the Bank and articulation/structuring of the borrower’s need from the syndication credit market;
4. Preparation of Term Sheet by Loan syndication unit based on discussion with the borrower:
(Term sheet is a document, which is not generally intended to be legally binding until it forms part of a formal offer, setting out the main agreed terms and conditions to a transaction between the borrower and arranger)
5. Discussion with the top management of the Bank for finalization of Term Sheet for obtaining letter of Mandate from the borrower. A meeting can be arranged in the Head Office of Lead Bank with the borrower and top management of the Bank on this issue followed by special entertainment and gift.
(Mandate is the authority to act in the marketplace on behalf of a Borrower to the market is based upon terms and conditions, which have been agreed between the Arranger and Borrower.)
1. Obtaining letter of Mandate from the Borrower along with loan processing fee. Contents of Term Sheet/Letter of Mandate:
a) Name of Lead Arranger;
b) Name of Borrower;
c) Nature of Facility;
e) Total Project Cost;
f) Syndicated Amount;
g) Minimum Participation Amount;
k) IDCP (Interest During Construction Period);
l) Debt-equity Ratio;
m) Pricing/Interest rate;
n) Loan Processing Fee (Flat): A lump-sum amount to be paid to the Lead Arranger for processing the loan in the syndicated credit market. A loan-processing fee is non-refundable.
o) Syndication Fee/Arrangement Fee (Flat): Fee to be paid on syndicated amount before signing of the agreement to the mandated bank/Lead Arranger or group of banks for arranging a transaction (This fee will not be shared to the participating banks);
p) Agency Fee (Flat): Fee payable on syndicated loan amount to the Agent for preserving all security documents and for administrative & monitoring activities as agent tenure of the loan.
q) Participation Fee (Flat): Fee to be paid on syndicated loan amount to the Lead Arranger before signing of the agreement which will be shared among the participants on pro-rata basis.
r) Management Fee (Annual): Fee on outstanding amount of the facility after end of every loan year during loan period to be shared by all the participating banks on pro-rata basis.
s) Commitment Fee (Quarterly): An annual percentage fee payable to the Lead Bank on the undrawn portion of a facility made available by it to a borrower. This fee is typically payable quarterly in arrears and to be shared on pro-rata among the participants.
t) L/C Commission: L/C will be opened (for import of capital machinery and equipment for the proposed project) by the Front Bank (Lead Arranger or L/C opening Bank) and some percentage of commission to be realized by the Front Bank. L/C opening Bank (Front Bank or Lead Arranger) may retain some percentage as skim of L/C commission and the rest will be shared on pro-rata basis.
u) Escrow Account: Escrow Account is opened pursuant to the Escrow Account Agreement into which all funds accrued in all accounts of the borrower permitted under this Agreement shall be paid into and in respect of which the borrower shall give irrevocable instructions to the bankers of such accounts to transfer the proceeds thereof to Escrow Account in accordance to the terms of this Agreement.
v) Supplier’s Guarantee: Guarantee from the suppliers for due performance of the machinery/commercial production will be obtained before payment to the suppliers. The suppliers will provide a Guarantee from a reputed Bank for minimum 10% of the invoice value of machinery ensuring the quality of machinery, production capacity and commercial production.
w) Availability period: The period in which the facility to be availed by the borrower after the date of signing of the facility agreement.
x) Security Packages: Against the syndicated facility will be sanctioned includes pari-passu charge by way of registered mortgage of project land and building, pari-pasu charge on machinery and equipment of the project, personal guarantee of the directors & their spouses, corporate guarantee of sister concerns etc.
y) Legal Expenses: All legal costs relating to prepare the documents by the Lead Arranger to be borne by the borrower. But vetting of the documents by the participating banks to be borne by the participating banks.
z) Syndication (Best effort Basis): Placement in syndication market where loan facility has not been fully underwritten, the arranger will agree to use its best efforts to attract sufficient lenders to complete the syndication deal in the amount required by the borrower.
2. Obtaining Feasibility Report on the Project from the borrower;
3. Collecting CIB Inquiry Form on the customer for obtaining CIB report from Bangladesh Bank on the Borrower;
4. Obtaining Board’s Approval/Consent for raising fund under lead management of the Bank and determining Lead Bank’s stake;
5. Officials of Syndication Unit of the Lead Bank may visit the supplier’s country to observe the supplier’s (of machinery and equipment) performance and the project where the supplier supplied the same machinery. If it is not possible to visit before opening of L/C, the visit program may be arranged before shipment of machinery & equipment of the project.
6. Offer Letter may be issued to the prospective participating Banks/FIs (before sending IM) for obtaining ‘Soft Commitment’ which may touch about the project, sponsors, pricing and period.
7. Preparation of Information Memorandum (IM) after studying all relevant aspect of the project for viability of the same (if necessary, expert opinion of technical expert, market survey to be done by the lead arranger to strengthen the IM). Contents of Information Memorandum (IM) given below.
i) Circulating Page (Cover Page of IM); (Cover Page includes a indistinguishable, colored, meaningful and attractive photographs)
ii) Disclaimer: Second Page of IM ;
(Statement made by the lead manager as representative for the underwriting Syndicate and contained in offering documents, which asserts, inter alia, that certain information provided in the prospectus was supplied by the borrower and is therefore not the responsibility of the managers. Exculpatory language is normally placed inside the cover of the information memorandum to reinforce the importance for each bank of performing its own independent financial and economic analysis of the borrower.)
iii. Contact Persons;
iv. Table of context (Section wise with page No.)
v. Executive Summary
vi. Management of the Company
vii. Market Aspect;
viii. Technical aspect;
ix. Performance of Supplier;
x. Financial of the Company;
xi. Group performance of the Company;
xii. Risks and Mitigants;
xiii. CIB Report (Contents)
xiv. Representation & warranties;
xv. Appendices of Market Summary;
xvi. Any other section may be included which depends on the nature of project & Products.
A: Details of Financial Analysis
a) Total Cost of the Project
b) Fixed cost of the Project
c) Summarized cost of the Project
d) Item wise Price of Machinery and equipment (to be imported);
e) Project Implementation Schedule;
f) Working Capital Assessment;
g) Earning Forecast;
h) Sensitivity Analysis
i) Sales Estimation;
j) Cost of Goods Sold;
k) Detail Break-up of:
– Raw materials
– Detail Duty Structure of Raw Materials;
– Wages and Salary;
– Water, Power and Fuel;
– Stores and spares;
– Repairs and Maintenance;
– Rent, ax and Insurance;
– Depreciation Cost;
– General, Administrative and other Expense;
– Financial Expenses;
– Break-even Analysis;
– Fund Flow Statement;
– Projected Balance Sheet;
– Financial Rate of Return;
B: Copies of Supporting Documents of IM
a) Copies of quotation of machinery and equipment (to be imported);
b) Copies of quotation of local machinery;
c) Copy of Brochures of supplier of machinery and equipment;
d) Copies of Performance certificate of the supplier of machinery and equipment;
e) Copies of Credit Report on the supplier of machinery and equipment;
f) Copies of documents of price verification of the machinery and equipment;
g) Copies of Certification of valuation of land development, building and civil works;
h) Copies of competitive quotations of machinery and equipment;
i) Copy of BOI registration;
j) Trade License;
k) NOC from competent authority (i.e. Union Parishad etc.)
l) TIN Certificate;
m) City Corporation Certificate;
n) Environmental Clearance;
o) Process Flow Chart;
p) Site Location Map;
q) Factory Layout;
r) Clearance of Gas Connection;
s) Bio Data of all Directors;
t) Networth Statement of all Directors;
u) Bio Data of all Technical Persons;
v) Copy of Certificate of Incorporation;
w) Copy of Memorandum of Association and Articles of Association;
x) Bank’s Certificate/Declaration regarding liability position of all sister concerns of the company;
y) Detail Organogram (with Responsibility Accounting);
8. Offer Letter for final commitment and circulation of Information Memorandum to the Banks/FIs (to be addressed to CEO of the prospective participating Banks/FIs);
9. Contents Of Offer Letter;
– Overview of the project;
– Overview of the Management;
– Overview of the Group;
– Speciality of the project;
– Contract persons name, telephone, fax, e-mail etc.
– Specific date of closing the syndication deal;
– Others if any.
– To be signed by the CEO of Lead Arranger.
10. Roadshow: A presentation to potential syndicate members by the borrower. Usually it is organized by the arranger and held in more than geographic location.
11. Persuasion to the banks/FIs for obtaining consents;
12. Obtaining CIP (Commitment in Principle) at first from the prospective participating banks/FIs;
13. Reply all the queries of the participating banks/FIs, if any and satisfy them as soon as possible (without any delay);
14. Arrange a site visit program by all the prospective participating banks/FIs;
15. Determination the strategies for raising fund from the prospective participants and involve the top management of the Lead Arranger;
16. Build up core relationship with the dealing officials of the participating banks/FIs by the officials of Lead Arranger and find out the way to obtain final approval at the earliest and take action plan participant to participant;
17. Inform the status of fund raising position to the top management of the Lead Arranger by Syndication Unit (of Lead Arranger);
18. Obtain Final commitment from the Banks/FIs;
19. Place a Memo before the Board informing detail status of fund raising position as Lead Arranger and finalization of the stake of all the participants along with the Lead Arranger’s stake and finalization of amount extending for working capital facility to the borrower;
20. Status of fund raising of the syndication deal:
– Equal Subscription: Raised amount in equal of the deal target;
– Over Subscription: Raised an amount in excess of the deal target;
– Under subscription: Raised an amount in lower of the deal target.
19. Giving indeed thanks (letter) to the CEOs of the participating banks/FIs (to extend their co-operation to close the deal) from the Lead Arranger (to be signed by the CEO of the Lead Arranger);
20. Preparation of documents of syndication by Bank’s panel lawyer;
21. Send the set of documents to the participating Banks/FIs for their vetting, view/suggestions, if any;
22. Incorporate the views/suggestions of the participating banks with consultation with the lawyer and finalization of documents;
Name of some syndicated loan documents:
· Facility Agreement;
· Pari Passu Security Sharing Agreement;
· Escrow Account Agreement;
· Agreement for Assignment of Insurance;
· Agreement for Assignment of Contract;
· Projects Funds and Share Retention Agreement;
· Subordination Agreement;
· Deed of Mortgage;
· Letter of Hypothecation (machinery to be purchased);
· Letter of Hypothecation (existing machinery);
· Letter of Hypothecation (Balance on the account of Escrow Account);
· Power of Attorney to sell the hypothecated machinery;
· Letter of Undertaking of all the Shareholders;
· Personal Guarantee of all the Directors;
· Corporate Guarantee of the sister concerns;
· Letter of Continuation;
· Demand Promissory Note;
· Letter of Comfort;
23. Requesting the participating banks to give the name of signatory and witnesses to execute the documents and the name of Lending Offices where the syndicated fund will be disbursed;
24. Selection of Venue, Chief Guest and send the invitation to the guests;
25. Arranging a formal Signing Ceremony for signing the Facility Agreement and other documents by the Borrower, the Management of the Lead Arranger & Agent and the participating Banks. An exclusive and attractive banner will be prepared by the Lead Arranger for formal signing ceremony.
26. Making Tombstone: Record the name of the borrower, the date, the amount and type of transaction, the name of banks that committed to the transaction, the name of Lead Arranger (Arrangers, Co-Arranger, Joint Arranger) and the name of agent (s). The position of the banks in the tombstone is determined by the status accorded to each bank based on its commitment. Banks name may appear in several times in the tombstone : for instance a sole arranger may appear as the Lead Arranger, Lead Manager, participant and as the agent also (Copy of tombstone is enclosed).
It may be noted that Arrangers may have their own distinctive styles for tombstone, which are used whenever possible. Media can also be used for publication of signing ceremony.
27. Brochure: It may be produced by the borrower by giving general idea of the project on the occasion of the signing ceremony (Sample copy is enclosed).
28. Other Signing Gifts: Signing Pen, Gift Box, Special entertainment etc.
29. Closing the Syndication deal primarily and starting the syndication in real sense.
1. Issue Sanction Letter to the Borrower from the Agent;
2. Completion of all the documentation/mortgage formalities as per sanction terms and conditions and Facility Agreement and other syndication agreements;
3. Send a copy of the set of all documents to the borrower and the participating banks attested by the authorized signatory (person) of syndication unit of agent bank;
4. Opening of L/C for import of capital machinery and equipment by Front Bank/Lead Arranger/Agent;
5. Distribution of participation fee to all the participating banks by the lead arranger/agent on pro-rata basis;
6. Distribution of L/C commission to all the participating banks by the lead arranger/agent;
7. Prepare draw down schedule and send draw down notice to the participating banks/FIs as per Facility Agreement and collection of fund;
8. Send the Audited Financial Statement of the company to the participating banks as per facility agreement;
9. Send the progress report on the project to the participating banks describing the details works of the project completed and the contribution of the equity of the borrower;
10. Preparation of Investment Schedule of the project;
11. Preparation of Repayment Schedule;
12. Arrange Site Visit Program time to time before starting Trial Production and Commercial Production by the Lead Arranger/agent;
13. Obtain NOC from the participating banks/FIs, if there is any change in Means of Finance/Project Cost or any change of terms & conditions of the Facility Agreement or other syndicated documents;
14. Arrange review meeting with the borrower, participating banks and the Lead Arranger time to time for exchanging views with each other regarding progress of the project and to enhance the relationship with the Lenders and the Borrower. Minutes of the meeting to be distributed to the borrower and participating banks/FIs in time;
15. Distribution of installment of syndicated loan to the participating banks/Fs as per repayment schedule;
16. Proper monitoring of the syndicated loan by the Lead Arranger/agent and provide any information about progress or any other issue of the project;
17. Reconcile the outstanding amount with all the participating banks along with principal and interest;
18. Closing the syndication deal by the Lead Arranger/Agent in real sense by payment of last installment to the participating banks and reconciling all the calculation of the syndication deal.
Interest Rate Of Syndicated Loan In Bangladesh
According to Bangladesh Bank regulation procedure for determination of interest rate in case of local syndicated loan is average of last six months interest rate of Treasury Bill plus a margin (negotiating with borrower). But fluctuation of interest rate of Treasury Bill is frequent and fluctuation rate is also high. To overcome this problem financial institution at first signed an agreement with borrower to determine a logical rate for transaction. The reason behind for this process is avoiding future complications from borrower.
Variable or floating rather than fixed rate is reset by the borrower periodically. The periods most frequently used are one, two, three and six months. The interest rate is market level that is the rate remains almost same with the rate of term loan offered by other financial institutions. At present the interest rate of term loan is 15% and the rate of syndicated loan ranges from 14% to 16%. The rate charged to each participant may vary. But for the easy and standardized dealings the rate are determined same for every participants.
State Of Syndicated Loan By Local Bank
Prime Bank Limited (PBL)
Prime Bank Limited (PBL) is borrowing a local giant in the syndication market by competing with the foreign banks. Among the local banks, Prime Bank’s role is pioneer and all other local Banks are following it both in terms of structuring and successful completion of the deal, it means that Prime Bank Limited (PBL) is proactive in Syndication market. Prime Bank Limited has successfully concluded 14 (fourteen) syndicated deals by raising Tk. 850 crore (approx.) as Lead Arranger and Agent since inception of the Syndication and Structured Finance Unit (November: 2002).
It is pride for PBL that 3 (three) syndication deals were wrapped up in the year 2003 under the Lead Arrangement of Prime Bank Limited. Out of three, the syndication deal of Nasir Glass Industries Limited for Tk. 112 crore was at that time the ever biggest syndication deal raised by any local private commercial banks where 14 (fourteen) private commercial banks including one foreign bank and three non-banking financial institution participated. Confidence Salt Limited was another challenging project for PBL where by Tk. 32 crore were raised for the first time in our country producing salt through vacuum evaporation process by Swiss Technology. The last project in the year 2003, was Hydrogen Peroxide plant named H. P. Chemicals Limited (is the only manufacturer of Hydrogen Per Oxide in Bangladesh) where 4 (four) private commercial banks participated. It already approved another 3 new projects in 2007 and at the beginning of 2008.
South-East Bank Limited (SEBL)
South-East Bank Limited another local proactive private sector bank which arrange and participate in syndicated loan based project finance. Since 1996 it was starts it’s syndicated loan activities by participating the project Padma Textile Mills Limited. During this time as a lead arranger and co-arranger it raised Tk. 610.80 crore. Total participating amount in syndicated loan by SEBL is Tk. 479.94 crore. It already wrapped up 6 projects.
Eastern Bank Limited (EBL)
Since 1999 Eastern Bank started its syndicated loan activities by participating in the project Rahim Still Mills Co (Private) Limited and Ekushey Television Limited. In 2001 it introduced it’s as a lead-arranger by financing in the project Shah Cement Limited. After 2006 it established its separate corporate division for syndicated loan which name is Structured Finance Division. From that time it raised Tk. 3025 million and USD 7.5 (Offshore) as a lead arranger. In this project its participating amount was Tk. 736.7 million. Repayment of 3 projects started already.
Arab Bangladesh Bank (ABBL)
AB Bank in the private sector also took initiative to adapt to this growing concept. In 1997, AB Bank for the first time arranged a club financing with Dhaka Bank Ltd to raise Tk. 6700 lac – out of which ABBL financed Tk. 5700 Lac and Dhaka bank financed Tk. 1000 Lac. In 1999, AB Bank arranged its second syndicated credit facility with IPDC to raise Tk 3563 Lac. Since then AB Bank did not look back. Since 1997 to 2007 (till date), AB Bank has raised total Tk. 25989.56 Lac as Lead Arranger.
AB Bank has also participated in different syndications arranged by other Banks, out of which till date 6 (six) syndication has successfully been completed. AB Bank exposure in these completed syndications was Tk. 4700 Lac. At the moment AB has participation in 19 (nineteen) syndicated facilities. AB Bank’s exposure in the ongoing syndication is Tk. 51560.29 Lac which is diversified ten sectors.
Problems Of Loan Syndication In Bangladesh
This is the early stage of loan syndication in Bangladesh as such problems are supposed to be encountered in these processes which are:
Problems of the Syndicate Members:
As the arranger has to negotiate with different parties and all the participants evaluate the project and borrower quality, it takes enough time to start the funding from the syndicate to the borrower.
Lack of transparency:
Another problem, which is faced by the participants, is the lack of transparency between lead arranger and other participating banks. As the lead arranger is maintaining relationship with the borrower, participating financial institutions are sometimes deprived of their actual earning. Lead arranger manipulates information and deceives the partners.
Lack of skilled manpower:
The number of skilled officials in this field is not very high. Most of the financial institutes lack adequate skills in Syndicated Financing. In order to become successful in arranging funds under loan syndication the official of the banks and financial institutions should have the ability to clearly define the benefits and costs to the participating banks and financial institutions.
Troubles of loan repayment:
Now a days its’ became very risky to finance any corporate body even reputed one as well as large projects. This is because; there are some recent incidents where borrower failed not only to repay the loan amount but also the timely interest payment. Some important things to be considered before approving large amount of loan includes proper monitoring of the projects and pre assessment of the borrower about the ability to continue the project successfully.
The loan syndication process in our country takes more time and for this reason the rate of different fees is sometimes higher in comparison to other countries.
In Bangladesh the investment in any project whether large or small has to face different problems created by the administrative procedure. And for this reason sometimes the borrowers are not interested to take any initiative for investment which is a necessity for the economic development of the country.
In our country private banks are sometimes reluctant to participate in loan syndication as participating bank. Because they often do not have clear idea about what benefit they will be able to get from the loan syndication since it is new concept in our country.