Objective of the study of the Project:

To study the mechanics of loan syndication. role of syndicator (Lead Arranger) various aspects of project appraisal. Loan Syndication as a fee generating business.

Limitation of the Project:

Did not work on any live projects. The training was for only 2 months which is not sufficient to learn the whole syndication process. Secrecy was maintained.

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CAPITAL MARKET IN INDIA

The capital market is the market for raising funds through financial securities, where individual, companies and governments can raise long term funds. Selling stock and selling bonds are two ways to generate capital and long term funds. Thus bond markets and stock markets are considered capital markets. The capital market is divided in two different markets. 1. Primary capital market 2. Secondary capital market PRIMARY MARKET: The primary capital market is concerned with the new securities which are traded in this market. This market is used by the companies, corporations and the national governments to generate funds for different purpose. The primary capital markets are also called the New Issue Market (NIM). The securities which are introduced in the market are sold for first time to the general public in this market. These primary issues are used by the companies for the purpose of setting new businesses or to expanding the existing business. At the same time, the funds collected through the primary capital market, are also used for the modernization of the business. There are three ways of offering new issues in the primary capital market. These are:

Initial Public Offering Preferential Issue. Rights Issue (For existing Companies)

SECONDARY MARKET: The secondary capital market deals with those securities that are already issued in an initial public offering in the primary market. Typically, the secondary markets are those where previously issued securities are purchased and sold. The secondary capital market play a market place for the bonds that are already issued in the primary market while the secondary stock market trades on those stocks that are already issued by the issuers.

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The secondary market value of a stock or a bond is different from their face value. Secondary market is very vital for an economy to grow because it reflects the flow of currency in the market. Facts of Capital Market in India: Indias capital markets have experienced wide changes since the beginning of the last decade. Its capital market has advanced than any other emerging market economies. India has a dynamic equity market. The sharp rise in Indias stock markets since 2003 reflects its improving macroeconomic fundamentals. Innovative products such as securitised debt and fund products based on alternative assets are starting to break ground. A vibrant, well-developed capital market has been shown to make easy investment and economic growth. The persistent reforms in the sector can support Indias already impressive growth trend in the coming years. Some of the facts which will give you a good overview of the capital market of India are as follows. India is the worlds 12th largest in market capitalization. With Sensex crossing 20,000 mark on 29 March 2007 ahead of most of the emerging economies with a P/E ratio of 22.01 as on 31 March 2007 NSE (Indias National Stock Exchange) is the third largest in the world in the number of trades after NYSE and NASDAQ India has 23 small and 2 big stock exchanges The 2 big stock exchanges (National Stock Exchange and Bombay Stock Exchange) account for 90 per cent of trade Over 7000 listed companies on the stock exchanges largest in the world 122 investment bankers in the market 58 under writers to support primary issues 40 foreign venture capital funds About 1000 foreign institutional investors For normal FIIs, limit for investment in equity is at least 70 per cent while the rest could be invested in debt up to a maximum limit of 30 per cent FIIs could also be dedicated debt funds who can invest up to 100 per cent in debt 3|Page

Foreign investment can be made in India with specific prior approval in sectors other than those prohibited Foreign investment is now freely allowed in all sectors, including the services sector subject to specified sect oral ceilings except in a few strategically sensitive areas An Indian company can raise foreign currency resources overseas through American Depository Receipts (ADRs) or Global Depository Receipts (GDRs). Foreign Institutional Investors (FII) are allowed to invest in India under the Foreign Institutional Investment scheme Investments can be made through foreign venture capital funds Private equity is allowed as an alternative form of investment Qualified Institutional investors are allowed to invest in Indian Depository Receipts floated by foreign companies. FIIs and NRIs can also invest in IDRs after obtaining permission from RBI

FIIs can make investments in Corporate and Government Bond markets within the limits

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Capital Markets Structure

Capital Market Scenario

Primary Market (Through issuances)

Secondary market (Through stock exchange trading)

(Companies & Other body Corporate)

(Government Securities & Corporate Debt)

(Options & Futures)

Wholesale Segments (Institutional & large investment)

Retail Segment (Small Investors)

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Products & Sources to raise capital in India

Sources to Raise Capital for a Company in India: Money is a scarce resource and each source has its own advantages and disadvantages. Choosing the right sources of capital is a decision that will influence a company for a life time .The money is out there in the market and the key knows where to look for that money. Creativity counts. Companies have to be as creative in their searches for capital as they are in developing their business ideas. A company should be thoroughly prepared and well planned before approaching lenders and investors. A company should not underestimate the importance of making sure that the chemistry between themselves and the funding sources is a good one. Lenders look for a return on investment, the size of the risk and the flexibility with which they can get their money back when they want. For the company seeking money, the decision as to the best source will ultimately depend on what the money is for, how long the money is needed for, the cost of borrowing and whether the firm can afford the repayments. The sources of raising capital are as follows. 1. Promoters Capital 2. Equity Financing 3. Internal Accruals 4. Debt Financing 5 6 7 Lending through Banks Lending through Financial institutions Government assistance (Subsidy/ Grant etc) Private equity Venture capital funding

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Promoters Capital: Promoters Capital is the main source of capital available for starting a company initially. This type of capital though, when invested is often quickly turned into long term fixed assets, which cannot be readily converted into cash. The promoters are the co owners of the company and since its their own entity, their investment to run the business is very crucial. Good promoters hold and an adequate Debt to equity ratio (DER) infers good strength for the company, which can help the company get more finances from the other lenders in the market. A promoter has to fund at least 30% of the total funds required by a company.

Equity Financing: The biggest advantage of equity financing is that there is no obligation to repay it. Even when a company issues preferred shares that "require" a dividend payment to the holders of those shares, the requirement is only that they are paid before other equity holders. If the company does not have the cash to pay the dividend, it cannot be forced. This lowers the risk to the company, but increases the risk to investors. Another great advantage to equity financing is that it makes the investor a part of the company or the co owners of the company. There are, however, two major down-sides to equity investment. 1) There is expectation of higher returns on equity investments. One of the underlying fundamentals of finance is that, the riskier the investment, the greater the reward (return on investment) the investor expects to receive. Since the risk to equity investors is greater than that to a creditor (a debt lender), equity investors will have greater expectations of the companys performance 2) Equity investment results in reduction in percent ownership of the company by existing shareholders when new shareholders are issued stock.

Internal Accruals: The internal accruals of a business are the accumulation of retained earnings and depreciation charges. Companies generally retain 30% to 80% of their after-tax profit for 7|Page

the financial growth of the firm. The reserves and surplus representing the accumulated retained earnings constitute an important source of long term financing. These earnings which they have are also used to fund the projects that the company thinks of starting. So this also becomes one sort of financing of a project. The advantage of this source is as follows: 4 It is easily available to the business, requiring no need to consult its lenders or shareholders. Control of the business is not weakened when it uses the retained earnings. Stock markets view retained earnings in a more positive light than equities.

Debt Financing: Debt is an important part of every business. There are two key advantages to debt. The first is that by using debt, the owners of the company can see a greater return on their investment in the long run because they have not been diluted with any ownership criteria. Debt is a far better result for a company in the long run than any other borrowing. The second major advantage to Debt relates to its tax treatment. Interest payments made on debt are tax deductible. This means that the available cash a company has at the end of the year to distribute to the owners or use by the company is higher than it would otherwise be. There is, however, a great disadvantage of debt. Unlike equity investment, a company must repay its debt as directed in the terms of its agreement or the creditors can take an action on the company, often resulting in the end of the business altogether.

Bank/ FI loans: The ideal source of raising debt is through banks and financial institutions. The bank/ FI charge interest on the outstanding loan amount, and the interest plus capital, are repayable regularly according to the terms and conditions of loan assistance.

Government assistance: The government provides finance to companies in the form of Grants, Subsidies and other forms of direct assistance, as part of its policy of helping to develop the national 8|Page

economy, especially in high technology industries and in areas of high unemployment. The Indian Government has separate entities for each sectors which look into the investing and regulating the growth of the country in various sectors. 6 Private equity: Private equity is an investment done in equity securities of companies which are not listed on the stock exchange. Private equity can either be in the form of investment of capital into an operating company or the acquisition of an operating company. Primary investors in the private equity are institutional investors. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet. 7 Venture capital funding: Venture capital (also known as VC or Venture) is provided as seed funding to earlystage, high-potential, growth companies and more often after the seed funding round as growth funding round (also referred as series A round) in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. To put it simply, an investment firm will give money to a growing company. The growing company will then use this money to advertise, do research, build infrastructure, develop products etc. The investment firm is called a venture capital firm, and the money that it gives is called venture capital. The venture capital firm makes money by owning a stake in the firm it invests in. Venture Capital is generally infused into firms having a novel technology or a business model. Venture capital investments are generally made in cash in exchange for shares in the invested company. It is typical for venture capital investors to identify and back companies in high technology industries such as biotechnology and IT (Information Technology). Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms. When company's look for help from a venture capital institution, they must recognize that: 9|Page

the institution will want an equity stake in the company. It will need convincing that the company can be successful it may want to have a representative appointed to the company's board, to look after its interest

A venture capital organisation will only give funds to a company that it believes can succeed, and before it will make any definite offer, it studies the companies management thoroughly. A high percentage of requests for venture capital are rejected on an initial screening, and only a small percentage of all requests survive both the screening and further investigation and result in actual investments.

BANK PRODUCTS FOR CORPORATES TO RAISE CAPITAL:

Corporate loans: Banks provide corporate loans to companies to run their business efficiently and effectively for a certain period and on a certain interest rate. Companies wanting to work on a specific project or wanting to expand their business horizons go for these kinds of loans. The loan amounts are on a large scale and it is for a longer period. Cash Credit / Overdraft: Working Capital facility is provided to the industry to finance day-to-day production & sales. For production, funds are generally required for purchase of raw materials, stores, fuel, for payment of labor, power charges, for storing finished goods till they are sold out & for financing the sales by way of bills receivables. Cash Credit facility is granted to the customers to bridge working capital gap. Short Term Loans: The Bank provides short term loan facility for a period of up to 1 year for the purpose of bridging temporary cash flow mismatches arising due to various reasons like non-realization of receivables in time etc.

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Medium/Long Term Loans: The Bank extends medium term loans for tenors ranging from 1- 5 years for meeting various requirements like enhancement of net working capital, meeting advertisement expenses, sales promotion expenses etc Loan Syndication: Loan syndication is where 2 or more banks come together to finance a project on generally common terms. Banks act as agent banks and as participative banks. The Syndicator/ lead bank pools few banks together to provide a certain amount of loan to the company or the borrower. Syndicators of the loan also generally contribute a certain amount in the project. However, certain NBFCs and consultant also have started acting as syndicators to increase their fee based income.

Securitization:
Securitization is the process whereby loans, receivables and other financial assets are pooled together, with their cash flow or economic values redirected to support payments on related securities. These securities are referred to as asset-backed securities. They are issued and sold to investors, institutions in the public and private market by on behalf of issuers. The issuers use securitization to finance their business activities. This is also used as a tool for Asset Liability Management.

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Regulators to the Financial Market

The regulators of the Indian financial sector are Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI). SEBI: In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India. SEBI protects the interests of investors in securities and promotes the development of the securities market through appropriate regulation. The basic objective of the Board is:

to protect the interests of investors in securities to promote the development of Securities Market to regulate the securities market and for matters connected therewith or incidental thereto.

RBI: Reserve Bank of India (RBI) is the central bank of India. RBI is the head/ regulator for all banks in India. The role of RBI is to regulate the issue of Bank Notes and maintaining reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage. All the banking norms and criteria are set by RBI. It is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through monitoring the Bank rate or through open market operations. As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers: (a) It holds the cash reserves of all the scheduled banks. (b) It controls the credit operations of banks through quantitative and qualitative controls. (c) It controls the banking system through the system of licensing, inspection and calling for information. (d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks. RBI has followed the promotional functions vigorously and has been responsible for strong financial support to industrial and agricultural development in India.

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Infrastructure financing: A Boom in India:

Infrastructure sector is the backbone of all economic, social, environment and habitat development activities. India has seen extraordinary growth in infrastructure based industry in the last few years. These include mainly sectors like power, transport (airlines, roads, highway, airports and ports), housing and industrial development. All this was inevitable as without growth of infrastructure it is nearly impossible for other sectors to grow. During the last decade we saw the booming of the software sector largely because it was not dependent on infrastructure, while other sectors like manufacturing were left behind. The present time is perhaps the most favorable for boosting infrastructure development in India, as it will restore the momentum of economic growth, which in resent times has slowed due to the global meltdown. It is therefore very important for both the public and the private sector to come together and develop and modernise the countries infrastructure, thus enhancing its capabilities and creating better and modern facilities for the growth of trade, commerce, industry and without polluting the environment. Infrastructure boom should not be limited to the metros and cities but also impact the growth of the rural areas to develop and improve the connectivity of the villages and the towns which shall further reap the benefits of infrastructure. However this obviously needs more funds and also sustainable and competent institution having adequate appropriate expertise, drawn from both public and private sectors of the country. Initiative have been taken to boost this sector by setting up specialised institutions to fund infrastructure projects directly or to fund banks and financial institution for financing such projects. Organizations like India Infrastructure Finance Company limited (IIFCL), Industrial Finance Corporation of India Ltd (IFCI), Power Finance Corporation (PFC), Rural Electrification Corporation (REC), National Highways Authority of India (NHAI) etc; who have access to government funds specially created to develop different sector. Few Facts of Infrastructure development in India India spends just 6% of its Gross Domestic Product (GDP) on infrastructure than compared to Chinas 20% of its GDP. Indias 80% of traffic is crammed unto 3% of available roadways. As the volume of flights is expanding by 10% yearly, the country needs dozens of more airports. India has 3700 miles of expressways, were China has 25000 miles of 13 | P a g e

expressways. This infers that a lot of development is required to be made in India to make it a developed and much connected country. This will also benefit the country to achieve its dream to be a super power country in the world. Indian Prime Minister Shri Manmohan Singh has promised $300 billion in new roads, subways, power plants, ports and irrigation canals by 2012. One-quarter of the projects will operate within the framework of private-public partnerships (PPP); that places financial risk evenly on the builders. In return, builders collect user tolls on projects for up to 30 years before handing them over to the government. Western investors can take some comfort in the Indian legal system. Thus to conclude the increasing global emphasis on development of infrastructure has also become a visible trend in Asia. Infrastructure is the face of any nation and so it has to be in proper shape and condition. Besides that if the infrastructure sector develops than the industry can spread its wings to market its products. This would also create job opportunities for the people. This way directly or indirectly it helps the people and gets development in the country and helps the country to progress. Source: http://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAE XTN/0,,menuPK:295625~pagePK:64030134~piPK:241685~theSitePK:295584,00.html

Syndication: Most popular means to raise Debt & Equity:

As India Inc. goes on a capital expenditure and expansion spree, the financial system is witnessing a subtle change in the way credit is mopped up. More and more corporate are looking at loan syndications - a common phenomenon in the West. "Syndication is an arrangement where a group of banks, which may not have any other business relationship with the borrower, participate for a single loan." The standard theory for why banks join forces in a syndicate is risk diversification. The banks in the syndicate share the risk of large, indivisible investment projects. Hence syndication is a very effective source of financing to the corporate for their projects. 14 | P a g e

Project Finance
Definition: A financial structure where lenders have recourse primarily to the revenue-stream of the project or asset they are financing, rather than to the balance sheet of the sponsors

Process of Project Finance

Policies/norms Regulators

Returns Sponsor 1 Equity

Returns Sponsor 2

Regulation Host Government Concession/ other support Debt Project Company Project Lenders

Constructor

Suppliers

Off taker / End user

Insurer

Operator

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DEBT SYNDICATION
Introduction
Syndication of Debt is a process of providing loans by banks to companies to finance their projects. It is also an effective mechanism for banks to meet one of the prime requirements of banking which is risk diversification. In this 2 or more banks participate by funding a certain amount according to their norms for a fixed rate of interest and for a specific period to a company. The borrowers are major players in the market. A borrower typically mandates a bank (or a syndicate bank) to act as arranger and may designate one member of the syndicate to act as the agent bank for the syndicate. It is the role of the agent bank to coordinate all negotiations, payments and administrative details between the parties once the contract has been executed. The arranging banks typically receive front end fees for their role in winning and arranging the mandate and assuming risk by underwriting the loan. Advantage for a borrower: Large amount of money can be raised from a syndicated loan than from one lender. Dealing with a syndicate involves one set of documents and one set of negotiations rather than many different rounds with individual lenders. The company pays only one set of banking and legal fees. The syndicator will probably have the most direct relationship with the borrower and have the closest knowledge of the borrowers business Syndicator, if also is the lead bank, would be having a major share of exposure for that particular loan to the borrower. Syndicator has an added advantage to earn much fee based income compared to other participating banks, Viz: Syndication fee, Management fee, Advisory fee, Appraisal fee etc. The quality of the syndicator also as a lender would enhance the scope and visibility of the syndicators position in the market. 16 | P a g e Advantage for Syndicator (Lender Bank):

Advantage for participative banks: Banks have to maintain their prudential exposure norms as per their credit policy, thus syndicated loans would provide risk diversification and also provide good returns on investment. Forming new relationships and new businesses. For recognition in the market Direct business without much marketing efforts through participating in syndicated loans

Primary pressures affecting the syndicated lending market are summarized as follows: Demand has in the past varied due to factors such as the economic environment The need for various debt refinancing New money needs Exchange rate fluctuation The preference of one mode financing ( securitisation, equity issues over another (debt)

Supply of syndicated loans: The health of the banks and its effect on lending availability Appropriate and competitive pricing on risk Availability of good versus bad credit risks The ability of banks to establish relationships with prime borrowers Competitions between banks (influenced by the concentration of players due to mergers)

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Loan Syndication Process

Origination Identification of the project Reaching the Corporate

First Informal Contract Prima- facie Analysis Indicative Termsheet Project Appraisal Detailed Due Diligence Risk Mitigations Financial Projections based on realistic assumptions Recommendations

Loan Proposed to Board Approved Disapproved

If Approved
Preparation and Circulation of Information Memorandum

Follow up with prospective lenders

and

Obtaining Sanctions, harmonization of terms conditions and Documentation

Financial Closure

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ORIGINATION
Identification of business: Identification of business is to identify the business opportunities available in the market. The lender bank needs to find the prospective companies who are interested in expanding its business and who are planning to get into new ventures to expand its horizons. A lender bank needs to know why the company requires a loan and for what purpose. After finding these reasons the lender bank needs to know the companies debt so that it can do good business with the company. A lender bank also needs to know the loan amount requirement for the company to do business. News about companies in the market also plays a very important part in identifying business. For example news spreads in the market that a company is planning to built a power plant for this it would require loans so the lender banks can approach them and can get business. Information are gathered from 2 sources internal and the external source. Internal means via word of mouth and external source would be news on television, in newspapers, on the websites etc. Industries in every sector need some or another loans to do business like a infrastructure company bags a deal for constructing roads so it would require a loan to start its project since the investment would be pretty huge. Same with power sector also if it wishes to build a power plant it would require money so debt would play an important role. Contact the key personnel in the corporate to understand the needs and means to fund the proposal: An appointment is fixed with the authorized person who may be the promoters or the CFO of the company, adequate information about the benefits of the syndication of loans is provided to the company. The advantages of syndicating the companies loan and the benefits the company would be getting from it are informed. The whole amount is finalized by the syndicator so no need to go to different banks and negotiate, every thing will be done by the syndicator and a fixed interest rate will be 19 | P a g e

charged for a fixed period of time and every process from financing till the insurance and the distribution will be looked after. The constraints will be clearly informed to the borrower as a fee would be charged and there will be some norms by the banks that the borrower should follow during the loan period.

Prima-facie analysis:
A first sight analysis overview is taken into consideration. The following analysis is done of a company Promoter analysis: We need to see who the promoters are of a company and who have good reputation in the market. Technical analysis: The technical aspects of the company are looked after in this analysis as in the machinery or the equipments used by the company for its project. Market analysis: A through analysis is done about the companies stand in the market and the scope of the project in the market. Financial analysis: A through analysis of the companies financial statements like the balance sheet overview, profit and loss statements overview, the cash flow statements overview is done by the lender bank.

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Submission of indicative term sheet:

The term sheet gives the details of the companies future plans. The term sheet includes the project size, as in how big is the project, the project site, as where is the project located, what kind of a project it is for example a power plant or a road development project etc, the debt size of the project as the money requirement and the different types of debts the company would be engaging in for eg issue of equity shares, loans etc. The Return on investments that the company will get during the period will be calculated and accordingly to that the banks will charge its fee like syndicators fee and the underwriting fees.

Negotiations:
The company and the lender bank sit and talk about each others interest that suits their requirements and finalize the deal. The company would like to have the best possible interest rate and a suitable maturity period with a minimum amount of fee to be paid that suits their needs. And the banks look to earn as much of fee and interest possible. It should be a win-win situation for both the parties in the process.

Award of mandate:
The lead banker is awarded the mandate by the prospective borrower and is responsible for placing the syndicated loan with the other banks and ensures that the syndication is fully subscribed. They are entitled to the arrangement fee and undergo a reputation risk during this process. The lead bank handles all the dealings with the company, such as negotiating the interest rates, the period and fees and the terms and condition. The lead bank needs to identify the needs of the borrower and design an appropriate loan structure. A persuasive credit proposal is developed to obtain internal approval. The lead bank sells the loan in the marketplace and for this it has to prepare some documents like the information memorandum, the term sheet, and legal documentations and approach selected banks and invite them to participate. The lender bank goes and negotiates with the borrower and the participants to satisfy their concerns. 21 | P a g e

The lender bank looks into the day to day running of the loan facilities and accordingly departments are made to look in the matters, for example lenders legal department that looks into the legal aspects of the loan sanctioned for all the parties, lender insurance department which looks after the insurance aspect etc.

Execution
2A) PROJECT APPRAISAL:
Project appraisal is an assessment done by lender banker of a project in terms of its economic, social and financial liability. A lender bank makes an independent and objective assessment of various aspects of an investment proposition. In this he takes a second look critically and carefully at a project that is in no way involved or connected with its preparation, this way he is able to take an independent, dispassionate and objective view of the project in totality. A project appraisal helps a partnership to be consistent and objective in choosing the project. It makes sure that its activities benefit all the section of the party. Project appraisal also provides documentation to meet financial and audit requirements and to explain decisions to the people. Project appraisal also justifies spending money on a project, and so it answers the question about whether funding is required and whether a project offers good value for money. The following are the components of project appraisal. Market analysis: Market analysis estimates the potential size of the market for the product proposed to be manufactured and get an idea about the market share that is likely to be captured. Market size refers to the volume and value of the products or services consumed, or expected to be consumed, in a period. There are two ways one can go about estimating market size; supply-side and demand-side measures. In supply-side estimates, volume and value are measured from the point of view of production and trade intermediaries. In demand-side estimates, market size is derived from studying the behaviour of the consumers in the market place. 22 | P a g e

Market analysis is an in-depth study and assessment of various factors like pattern of consumption growth, income and price elasticity of demand, composition of market, nature of competition, availability of substitutes, reach of distribution channels, so on and so forth. So market analysis has great importance in project appraisal and it should be followed.

Technical analysis: Technical analysis examines the technical aspects of a company. The broad purpose of technical analysis is to ensure that the project is technically feasible in the sense that all the inputs required to set up the project are available and to facilitate the most optimal formulation of the project in terms of technology, size, location etc. The choice of technology is influenced by a variety of considerations like: a) Plant capacity: Often there is a close relationship between plant capacity and production technology. To meet a given capacity requirement perhaps only a certain production technology may be viable. b) Location and sites: A choice of location and site follows an assessment of demand, size, and input requirement. Location refers to a fairly broad area like a city an industrial zone where else site refers to a specific piece of land where the project would be set up. The choice of location is influenced by a variety of considerations like proximity to raw material and market, availability of infrastructure, labour situations, government policies and other factors. c) Principal units: The choice of technology depends on the principal inputs available for the project. In some cases, the raw material available influences the technology chosen. For example, the quality of limestones determines whether the wet or dry process should be used for a cement plant. d) Investment outlay and production cost: The effect of alternative technologies on investment outlay and production cost over a period of time should be carefully assessed. e) Use by other units: The technology adopted should be proven by successful use by other units

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f) Latest development: The technology adopted must be based on latest development in order to ensure that the likelihood of technology obsolescence in the near future, at least is minimized. g) Ease of absorption: The ease with which a particular technology can be absorbed can influence the choice of technology. Sometimes a high-level of technology may be beyond the absorptive capacity of developing country, which may lack trained personnel to handle that technology. Financial analysis: A proper financial review of the company is made. Cost analysis is done to find out the cost of production of the company. Pricing factors are also decided considering the demand, profits and competition in the market. Raising of funds and efficient use of the same is looked into. The income earned through the project, the expenditure and the profits earned is also observed. Organizational analysis: In organizational aspects management structures and the recruitments and training aspects are studied. An appraisal is done to see if the project is adequately staffed

Receipt of all relevant information pertaining to the project:

Every bank that does project appraisal needs to have a receipt of all the relevant information pertaining to the project. Relevant Datas are collected from secondary and primary sources and analysed. Datas like the capacity of the manufacturing unit, raw material used etc are analysed. Receipts act as a proof or an identity for work done in projects.

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Finalizing the term of sanctions:

After all the analysis done for the company its loan amount requirement is looked into. Since every bank has their norms, according to that the bank goes ahead and sanctions the amount to the company. The interest rate and the time period according to the calculations are removed and proposed to the company or the borrower. All the terms and conditions in a bank are finalized by the higher authorities of the bank so the respected managers work on the terms of sanction and forward it to the higher authorities who go ahead and confirm it.

Criteria for financing:

Banks/financial institutions (FIs) may sanction term loans for technically feasible, Financially viable and bankable projects undertaken by both public sector and private sector undertakings keeping in view the following points: The amount sanctioned should be approved as per the ceiling of the exposure norms prescribed by the reserve bank from time to time. Banks/FIs should satisfy themselves that the projects financed by them are run on commercial considerations and have income generation capacity sufficient to repay the loan together with interest. The projects need special skills on the part of lending agencies keeping in view their large size, huge capital costs, long gestation period and also long repayment period. Implementation of companies project may involve successful execution of several contracts with various agencies. Therefore, in addition to applying various appraisal techniques, it is necessary to evaluate the various project contracts and credit worthiness of the contracting entities and their facilities to fulfill contractual obligation. Participating banks / FIs for the purpose of their own assessment will refer to the appraisal report prepared by the lead bank. Banks should however ensure that the appraisal in all cases is completed within a time bound period and repetitive and sequential appraisals by several institutions are avoided. Installment for repayment of loans provided for the project should be decided keeping in view the future income generating capacity of the project. As the projects involve long 25 | P a g e

gestation period, financing banks and institutions should exercise necessary vigil on their asset liability position to ensure that they do not run into liquidity mismatch on account of lending to such projects.

Terms and conditions of sanctions:

The bank will finalize the actual loan amount sanctioned, the interest rate to be charged to the company, the period of the loan and the repayment procedures. The company has to open a current account with the bank. Ensure deployment of at least 30% of promoters contribution before seeking disbursement of loan from banks for the purpose of the project. Banks also agrees to arrange funds to meet shortfall of cash, if any in financing the project and such funds shall not be withdrawn, without the prior written approval of the bank during the term period. The company has to agree to satisfy bank that the physical progress as well as expenditure incurred on the project are as per the original schedule. The company has to arrange and furnish chartered account certificate in respect of amount spent on the project till date with each disbursement. A certificate from statutory auditors would be submitted every quarter in this regard. The company has to obtain and furnish NOCs from other first charge holders agreeing to let go the charge on the fixed assets and current assets of the company in favor of bank for the proposed loan facilities. No objection certificate from central/ state pollution control board for the proposed project/ arrangement. During the term of the loan, without prior consent of the bank in writing the company is not allowed to declare dividend in excess of the rate stipulated in the loan agreement or declare any dividend on its share capital, Its obligation is to pay the interest or installment to banks or other participating financial institution regularly and cannot not be a defaulter.

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An undertaking is taken to the effect that the company shall not undertake any new project or expansion or make any investment or take assets on lease, without prior approval of bank, during the legal tender of the loan.

Bank shall have the right to review the project cost before the final disbursement of the loan and if there is a pending review, the borrower shall obtain prior approval of bank for utilizing the amount of the loan equivalent to the contingency provision in the cost of the project.

Bank has the right to accelerate repayment of the term loans if the companys cash flow so deserves. The assistance shall not be utilized for any other purpose than for which the assistance has been sanctioned

Finalizing detailed appraisal note:

The datas collected by different analysis and the terms and conditions are put together and the relevant are kept and accordingly an appraisal note is prepared which can be referred by different participating banks and FIs for guidance. Even the companies refer to it and can match the details. Addressing the issues of the committees and approval from authorities: After finalizing the appraisal note the details are discussed by the committees so if any issue in the project or any foresee the details are addressed to the higher authorities so that a correct decision can be taken and the process of finalizing the project can be approved. Since its a matter of huge amount of money there should be a higher authority to look into the matters of the process. Many times several problems are noted while scrutinizing progress reports, financial statements and inspection reports. These problems may need the attention of the top management of the company. If the problems are of serious nature, in addition to writing letter to the company, the head of the follow-up department of the financial institution or

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bank should call the promoters of the company to discuss with them and try to find a solution. As institutions and banks provide more funds than the promoters in most of the projects, they also take active interest in solving the problems faced by the unit. Financial institutions and banks create a sense of partnership between them and the management of the assisted concerns. The financial institutions and banks have been taking increasingly active interest in solving the problems of assisted concerns. They have helped the entrepreneurs in matters in solving the problems of assisted concerns. They helped the entrepreneurs in matters like selection of machinery, selection of technical personnel, procurement of raw material; execution of export orders, etc. The confidence created in the minds of entrepreneurs that the banks/financial institution (fIs) are genuinely interested in the well-being of the project, has prompted the management of a few companies to approach the financial institution even for settling the differences among the directors at board level or with the top managerial personnel. In case of difficult projects or projects involving large outlays, a team having representatives of various financial institution and banks should be constituted for intensive follow-up. A lead institution should be decided for follow-up work of each project. If any serious matter is observed by the lead institution, the attention of other institutions should be drawn, and if necessary, the matter should be discussed in the meeting of financial institutions. Necessary action taken in time may save a unit from becoming sick.

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2B) DEBT SYNDICATION

Preparation of Information Memorandum (IM): The lead banker prepares the information memorandum and provides it to the interested banks. It contains background information of the borrower and commercial information about the project, management and accounts, as well as the details of the proposed loan facilities being given. The document is usually produced by the arranger and includes information on the proposed loan and the borrower which is designed to help the potential lender in its assessment of the lending opportunity. Information memorandum vary in detail and complexity depending on the nature of the borrower and the loan, but in every case the arranger insists that the borrower take full responsibility for its contents and disclaims any responsibility for itself. The provision of information often goes beyond simply providing an information memorandum. It is also common for the borrower and arranger to present information directly, in what is usually called a roadshow, to potential participants. And even after the roadshow, potential participants often seek clarification or additional information which the arranger looks into. It is not a public document and so all potential lenders that wish to see it, usually sign a confidentiality undertaking. Company and Promoters analysis: A complete detail of the company and its promoters is mentioned in complete form for example XYZ Company limited and ABC Company limited are setting up a project through an SPV (special purpose vehicle) which is QPR and will be holding the equity at a ratio of 53:47. The details of the promoters is written down briefly in the information memorandum, like the business in which the promoters are, the estimated net worth of the company, the

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branches the promoters have, the subsidiaries the promoters have and the total number of employees working for the promoters in the organization. A brief profile of the owners of the promoters is given. The promoter company also needs to provide its last 3 years financial statement like the profit and loss a/c with the balance sheet statements. This gives a complete gist of the financial position of the companies in the market. The projects on which the promoters have worked on are written down in the information memorandum. Many aspects like the nature of work the promoters have done in the project, the time the promoters took to complete the projects and the amount the promoters spend on the project is mentioned in the information memorandum. Each and every detail of the promoters is mentioned in the information memorandum which gives the readers a complete gist of the promoters. This way an information memorandum is prepared with the information given by the company and some information gathered by the syndication team. In the end a complete review of the promoters is given by the appraisal department. Technical analysis: Projects are of different types like Infrastructure (Airports, Inland Waterways, Railways, Road and Bridges, Seaports, and other Transportation Projects), Power sector projects, Physical Infrastructure in urban areas (Urban Transport, Water Supply, Sewage Treatment, Solid Waste Management), Gas Pipelines Projects, Infrastructure Projects in Special Economic Zones (SEZs) and International Convention Centres and other Tourism Infrastructure Projects etc. All use different raw materials different techniques to run the project. If a bank or an institute wishes to finance the project its important for them to know the technical aspects of that project. They needs to know were their finances are flowing. Technical analysis gives complete information of the technical aspects of a project. Technical assessment gives the information of the projects background as in how big the project is, where it is located, the land acquisition part, environment and other clearances if any required, the project parameters like raw material supply, proximity to market,

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transportation facilities, power supply, the man power required, water requirements, government policies, labour laws, climatic conditions, taxes, insurance etc. Technical assessment of the size of the plant and scale of operations is also done. The project execution strategy implemented by the company is also written down in the information memorandum. All the contracts required for the project is implemented and written down in the information memorandum. Considered alternatives by the company are also written down so that the lenders are aware of all the feasible options the company can implement if any thing goes wrong. Maintenance of the project is one of the most important factors for the project hence the execution part is written down in the information memorandum. Technical analysis also includes the project implementation schedule. With this an overall technical assessment of the project is done and written down in the information memorandum. Market analysis: Market analysis is one of the most important part of the information memorandum. It gives you a view point for the rest of the plans by estimating total available market size and the share the project has in the substantial market. This section of the analysis provides the basis of estimated earnings which will determine the dimensions of the project and influences the amount of the finance required. A through collection of market data regarding overall size, growth rates, facts and figures and their sources are written down. Extracts from relevant surveys or statistics are gathered to support the report. A complete study of each and every aspect of the project is looked into and secondary and primary datas are collected and put together in the information memorandum for the lenders to go and understand the condition and scope of growth of the market before investing. The future growths and threats can be predicted only through this analysis. A through analysis of the competitors is done. The competitors strengths and weaknesses are analysed to see how hard they can hit and the way it can be overcome. The projected market share is also put in the information memorandum.

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The marketing strategies to be used against the competitors are also written down in the information memorandum. Market assessment is a vital part for the lenders to understand the projects debtness so that it can be a profitable investment for them.

Financial analysis: A summary of projected results for the next 3 to 5 years concentrating on the principals, trends, rising and falling margins, fluctuations, commitment to R & D, major capital expenditure and key assumptions are made and a detailed projection together with the assumptions on which they are based is to be provided in the information memorandum. It includes:

1. Profit and Loss accounts by months for at least 12 months and of 3 years preferably. The
breakeven point should be clearly identified.

2. Cash flow projections of 12 months and of 3 years preferably. 3. Balance sheet projections of 12 months and 3 years preferably are given.
A project cost comparison report is also prepared and given in the information memorandum. This report acts as benchmarks for the company .It helps the company to judge, that the estimates they have made is appropriate. Means of Financing: The bank examines the mean proportion of debt and equity components of means of financing of the project. The bank comments on the projects debt/equity ratio if it is satisfactory and acceptable. As per group credit policy the debt/equity ratio shall not exceed 2:1. i. Share Capital: There are two types of share capital equity capital and preference capital. The company according to its requirement and convenience goes ahead with the issues of the share capital. The bank ensures that the promoters of the company have invested at least 30% of the total cost. The investment should be made in share capital. ii. Internal accruals: The bank examines whether the company is able to meet its expenses and working capital requirements. It ensures that the remaining part of the profit is possible to use it as part of 32 | P a g e

financing for project. A condition has been stipulated that the promoters shall furnish an undertaking to meet any shortfall in the revenue gained through business during the project period.

iii. Debentures: They also can issue debentures. The bank examines the terms of proposed issue of debentures such as the nature of debenture, rate of interest, date of redemption and security offered. iv. Term Loan: Term Loans are provided by banks and financial institutions. Term loan represents secured borrowings which are very important source of financing new projects as well as the expansion, modernization and renovation schemes of existing firms. There are two broad types of term loan available in India: rupee term loans and foreign term loan. With this the company runs its business efficiently and effectively. The power of public company to borrow by way of debt is restricted to the amount of its paid-up capital and free reserves. The bank has to ensure that the loan is taken by the company under those limits only. If the loan is provided by many lenders than the information of that should be written down in the information memorandum.

Risk Analysis & Mitigations:

Risk is inherent in every business decisions. Risk and uncertainty characterize situations where actual outcome for a particular event or activity is likely to deviate from the estimate or forecast value. A Company when starts its business, gets keen to know what difficulties would they face during that period .The environment is very uncertain a company will make its calculations but will never know what can go wrong and can destroy them. When a company comes up with a plan its very essential for them to know, at the max what would go wrong. Hence a risk analysis is done for companies and the mitigations are found so if crises arise it can jump to the mitigation part. There are various risk and uncertainties that influence the project activities and they are like uncertainties in financial markets, construction problems, demand forecasts,

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instability in a countrys economic situation, uncertainties in host government organizations, stakeholders expectation and other external aspects of the projects.

SUMMARY OF TYPES AND SOURCES OF RISK IN A PROJECT NO TYPES OF RISK 1 Country Risk SOURCES Unstable government Inadequate foreign reserve MITIGATION MEASURES Carry out a thorough country risk profile and budgetary practices by reliable third party such as reputable management 2 Financial Risk consultants. Wrong financial assumption Consult a top-notch financial and packaging Inadequate cash flow 3 Construction Risk Poor feasibility study Poor design report Changes production 4 Inadequacy in Concession Contract Major terms are not included Exit clause not done economic condition not provided Compare proven the and contract similar with good in factors consultant projection to or conduct verifying the the

financial report of the project Ensure good design report and of before the project commences

Prolong construction schedule vetted by owner and consultant

Variation according to time or concession contract Employ a good legal advisor who are familiar with the industry in drafting the contract. 5 Shareholders Risk Unsupportive shareholders Loggerhead between shareholders Work closely with the major shareholders and know their aspirations.

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Market Risk

Change in market trend

Carry out a thorough market research before embarking on the project

Changes in Key Management Personnel Risk

Poor working conditions and Provide benefit working selected personnel

good key

benefits

and to

environment

management

Operation and Maintenance Risk

Unreliable operations and Operations maintenance team Poor machinery equipment installation reports and design

and

maintenance

agreement must have benefits or and benefit reduction to operation and maintenance company

Poor technical feasibility Provide a maintenance manual and update it regularly

Terms of sanctions:
Terms of sanction gives a complete detail of the projects terms and conditions agreed upon by the companies and the bank. Some of the terms of sanction by a bank: Facility Borrower Sponsors Project Type Project Cost Means of Finance It is either Rupee Term Loan or Foreign Term Loan, working capital financing etc Who are implementing the project Who are the investors for the project (Promoter Company) The type of the project for example a power or a infrastructure etc The total project cost (100 crore to 30,000 crore) Types of financing done by the company 35 | P a g e

Eg: Rupee Term loan: Rs. 1000 crore Equity Contribution: Rs 400 crore Loan Amount Rate of Interest Internal Accruals: Rs 200 crore Loan amount sanctioned for eg:1000 crore Complete detail about the interest rate and the payment procedures. (Varies from 8% to 20% Interest Reset p.a.) Since the tenure is long the lender has the right to reset the interest rate that the borrower would be paying. It happens after a certain Further Interest period. If the borrower defaults which means fails to make the payment on the due date which he is suppose to make as per the terms and condition, he will be charged interest and shall be compounded monthly and shall be payable Liquidated damages by the borrower. In case a company does not pay the amount before the due date than it becomes a defaulter. In this case bank charges a certain amount for Upfront Fee defaulting. There is a processing fee charged to the company by the lenders which is nonrefundable and non-adjustable to the company. Commitment fee Eg: (Varies from 0.25% to 1.5% p.a.) The company pays to the lender a commitment fee on the remaining principal amount after 3 months from the date of execution of agreement. Trust & Retention Account Lender Agent Eg: (Varies from 0.10% to 1.5% p.a.) The company appoints a bank as the TRA agent for the product They shall appoint a lender agent for the project 36 | P a g e

Security Trustee Commercial Operation Date

The company shall appoint a ST for the project This is the date the project begins to generate or function its desired task. For example a wind project starts generating electricity Delay granted in the repayment of a debt for some reason. For example a project doesnt not generate revenue in the initial period so the banks grants them a consideration of paying just the interest rate during that period, sometimes the interest part is waived off also. This includes the way a company would pay its installments. There are many ways by which a company repays the bank and they are as follow: Straight line repayment: Repayment done in equal monthly installments. Variable repayment: Repayment not in equal installments. It varies according to the terms. The reason for this is because the project hasnt started generating revenue yet and once it starts it does differ hence company opts for this option. Balloon repayment: A large single repayment done after making some payments earlier. The reason for this is because some time the company does not find the changed interest rate feasible so it thinks of paying the whole amount which they can according to the terms and conditions. It also happens when the company is doing well and has the potential to repay the whole amount. 37 | P a g e

Moratorium

Repayment schedule

Bullet repayment: A loan whose interest is payable at intervals agreed in the loan agreement, and whose principal is repayable in a lump sum at final maturity. The source of repayment is usually a new facility that is put into place. Prepayment If the company thinks of prepaying the whole amount before its due period, than there would be pre-closure charges charged to him and this would be according to the terms and conditions Mandatory prepayment of the company. In this event the generation of surplus cash, after meeting all the expenses for the year, can be utilized to accelerate the repayment of the loan. Such additional repayment would be used for repaying the last installments. Prepayment premium/ penalty shall not be charged for Conditional Prepayment mandatory prepayment. In the event of any saving in project cost or any surplus in construction period on the date of COD, the same shall be fully utilized for the repayment of amount. In case of any saving during the construction period due to reduction / elimination of income tax liability, the saving shall be utilized after Debt Service Reserve obtaining prior written approval of lender. A Company creates a Debt Service Reserve Account (DSRA) to meet the debt service requirements for the ensuing 2 quarters, principal and interest payment due to the 38 | P a g e

lenders from the cash flows available after meeting the debt service obligations during the operational phrase / provide a letter of credit / bank guarantee acceptable to lenders, for an amount equivalent to ensure 2 quarters principal and interest payment due to the project lenders, in lieu of such deposit. The amount accumulated in the DSRA shall not be used for any purpose other than for servicing of loan. The amount in the DSRA would be utilized only in the case of a shortfall in the cash flows for meeting debt service requirements from time to time No payments of dividend to equity shareholders, interest or repayments to the providers of subordinate debt, if any, shall be made until the required appropriation / replenishments are made to DSRA, to the satisfaction of the lenders and except with the prior content of lenders. The company shall invest the fund in DSRA only in permitted Novation / Assignment investments and securities as approved by lenders. A Bank has the right to novate / downsell / assign the Rupee Term Loan or any part thereof in favour of any other lender at its own Financial Covenants cost and discretion. The banks come up with certain covenants which the company has to follow for example The ratio of debt to contributed equity shall not exceed 2.67:1 during the entire tenure of the loan.

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Assumptions pertaining to project formulation: In any project Finance assumptions is a must. It is necessary for a banker to assess the effect of potential impacts on key variables of the model such as shortfalls in the projects production, changes in the product price, increases in operating costs, fluctuations in interest rates, etc. The purpose of assumptions is to test the ability of the projects cash flows to weather the storms of volatility and unexpected developments and identify possible Corrective opportunities. Hence assumptions are made on the basis of the previous records and experiences which can give a good projection of the project and can help the company to proceed with its project effectively and efficiently. Salient features of various contracts entered into for implementation of the project applicable: The salient features of project finance are as follows: The lenders finance of the project looking at the creditworthiness of the project, not the creditworthiness of the borrowing party. The repayment of the loans is made from the earnings of the project. Project financing is also known as limited recourse financing as the borrower has a limited liability. The security taken by the lenders is largely confined to the project assets. Financial Projections: Financial projection talks about the future of a company. It shows how much a company would spend and thinks of earning in the near future. Financial projections are assumptions made of companies financial statements. They show were the company thinks of standing in the near future. Financial projection shows the path to walk on and if it is not near to it than it gives a review of it being in trouble. With this a company makes planning which allows it to "come up for air from the daily problems of running the company, and take stock of where company is, and establish a clear course to follow. Identification of Banks/ Financial Institutions (FI):

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The lend bank is awarded the mandate by the prospective borrower and is responsible for placing the syndicated loan with the other banks and ensures that the syndication is fully subscribed.

The lead bank can start to sell the loan in the market place. The lead bank needs to prepare an information memorandum, term sheet, and legal documentation and approach selected banks and invite participation. Its the lead banks job to select the best bank that can run along with them and finance the project all the way till the end.

Relationship plays a very important factor in getting loan participation. Its about having a good reputation in the market. A good relationship with the banks plays an important role in loan syndication.

The companies have alliance with some banks who also participate in the loan syndication. FIs also participate in loan syndication. There are some institutes who have access to government funds specially created to develop the specific sectors participate in the loan syndication.

This way the lender bank identifies the best participative bank and gets participation for the projects.

Circulation of Information Memorandum (IM): After identification of banks the IM is circulated to the banks and the banks go through the IM report and accordingly accept or reject the proposal put across. Follow up: A Top to Bottom approach of Relationship Management is done by the lender bank. Once the IM report reaches to the banks, the banks does their part of research and sees if it is a good option to opt for or not. The lender bank has to do the follow up with the banks to get the deal done as soon as possible. Harmonization: The best part of loan syndication is that the terms and conditions for all the participative banks are same. And to make this happen the lender bank has to negotiate and convince all the banks to come together and adhere to the terms and conditions written down. The negotiation on the 41 | P a g e

interest rate, the duration and the type the payment would be made by the borrower would be decided by the lender bank. This ways its the lender banks job to bring all the banks together and get the project going.

Appointment of Agents for the consortium:

Lenders Legal Counsel (LLC): The agent banks preparing information memorandum seeks a proper legal counsel in order to ensure that they are not exposing themselves legally by preparing and furnishing such a document. It should be noted that while the arranging bank can expose itself legally by preparing and distributing an information memorandum, the arranger does not take any responsibility for the completeness or accuracy of the information provided in the memorandum, and that providing an information memorandum does not disengage participating banks from the responsibilityof undertaking their own independent analysis. It is up to the banks to evaluate the economic and financial aspects of a transaction before entering into a commitment. Hence lender appoints a legal counsel to look in all these aspects. Lenders Insurance Advisor (LIA): The lender appoints a Lender Insurance Advisor who undertakes negotiations in connection with project insurances, to ensure that the lenders position is fully covered in terms of project insurance.

Lenders Engineer (LE): The lender appoints a Lender Engineer who will monitor the technical progress and performance of the project and liaise with the project engineers and independent experts. As such, the bank is responsible for identifying technical (engineering) events of default. 42 | P a g e

Trust & Retention Account Agent (TRA Agent): The lender appoints a Trust & Retention Account Agent who will look into the project cash flows pass and all this will be monitored, collected, and disbursed by this team. Security Trustee (ST): A security trustee (ST) will exists where there are different groups of lenders or other creditors interested in the security and the coordination of their interests will call for the appointment of an independent trust company as security trustee. The inter relationships of participating banks in a bank syndicate often appears post-syndication in a tombstone, which is a form of advertising for the successful syndicating banks.

Legal Documentation & Financial Closure After all the sanctions are in place all the parties are called to execute the documents, and the recital of execution of the documents is recorded giving the place the date of execution and the details of the parties who have executed. This way the documentation takes place following are some of the documents which is needed: Common Loan Agreement (CLA) Lenders Agent Agreement (LAA) Shareholders Agreement (SHA) Inter Creditor Agreement (ICA) Sponsor Support Agreement (SSA) Undertakings Deed of Hypothecation (DOH) Trust & Retention Account Agreement (TRAA) Pledge Agreement (PA)

Debt Syndication in India

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Loan syndication by banks for Indian firms in the domestic and overseas market has already reached a total of $38.5 billion (Rs 1,77,110 crore) through 108 deals in 2009 so far--a 17 per cent growth over the comparable period last year, according to a report by global deal tracking firm Dealogic. This figure eclipses the previous high of $38.1 billion achieved in 2007. For the first time, Indian loans syndications were the largest in Asia-Pacific excluding Japan and made up 23 per cent of the regions volumes. By far the infrastructure sector was the largest recipient of arranged loans with project finance accounting for 78 per cent of the total volume. A total of $30.2 billion has been raised through 62 deals for project finance purposes in 2009 so far--more than three times the $9.7 billion raised in the corresponding period last year. Volume from Indian companies has surpassed Australia, where syndicated loan volume amounted to $36.5 billion and has become the leading nation in Asia, adding that Indian companies raised money mainly to fund their upcoming as well as current projects. SBI Capital Markets is currently leading the India mandated arranger ranking in 2009 with a deal share of 64 per cent, while international banks such as Deutsche Bank and Citi rank fourth and fifth in the table with shares of 1.6 per cent and 1.2 per cent, respectively

The Tally Indian syndicated loan volume ($m) Credit Date YTD Rest of year Total 44 | P a g e

2002 2003 2004 2005 2006 2007 2008 2009 YTD Source: Dealogic

1,581 2,740 4,756 10,847 22,189 33,580 32,907 38,509

460 1,136 1,187 1,418 3,564 4,468 4,505 0

2,041 3,876 5,943 12,265 25,752 38,048 37,412 38,509

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.

Source:
(http://www.business-standard.com/india/news/india-tops-syndicated-loans-in-apac-raises-385bn/77442/on)

Infrastructure Lending Of Major PSBs

Bank Canara Bank State Bank of Hyderabad Indian Bank IDBI Bank Central Bank of India end March 2010 32,741 15,185 12,344 24,287 12,222 end March 2009 17,313 4,513 5,125 18,337 6,870

Rs Crore

Outstanding as on Outstanding as on Lending in 2009-10 15,428 10,672 7,219 5,951 5,351 45 | P a g e

UCO Bank State Bank Of India Punjab National Bank Bank of Baroda Bank of India Allahabad Bank

11,715 40,118 24,520 18,408 10,056 12,647

6,688 35,108 24,992 17,201 10,531 8,000

5,077 5,010 -472 1,206 -475 4,647

Canara Bank has topped the list of public sector banks (PSBs) in terms of largest lending to the infrastructure sector during 2009-10. The Finance Ministry data shows that the lending in absolute value terms stood at Rs 15,428 crore for the year 2009-2010. This performance has taken Canara Bank's total outstanding to the infrastructure sector to Rs 32,741 crore as on March 31, 2010, an 89.1 per cent increase from Rs 17,313 crore as at end March 2009. State Bank of Hyderabad was a distant second with Rs 10,672 crore during 2009-10. Its infrastructure exposure stood at Rs 15,185 crore as at end March 2010, reflecting a 236.5 per cent increase over Rs 4,513 crore as at end March 2009. The third in the list was Indian Bank, whose lending stood at Rs 7,219 crore. Its total outstanding loans to the infrastructure sector stood at Rs 12,344 crore as at end March 2010, a 140.9 per cent increase over Rs 5,125 crore as at end March 2009. The country's largest commercial bank, State Bank of India's infrastructure lending in 2009-10 stood at Rs 5,010 crore, lower than some of the mid-sized banks such as UCO Bank (Rs 5,077 crore), Central Bank of India (Rs 5,351 crore) and IDBI Bank (Rs 5,951 crore). Infrastructure financing is now getting more cash-flow based. Large PSBs' lending to infrastructure sector in 2009-10 has been a mixed bag with sluggish performance by banks such as Punjab National Bank and Bank of India. Infrastructure loans are generally for more than 10 years and banks have short-term resources. The banks, therefore, face asset-liability mismatches. About 81 per cent of the deposits of public sector banks are in the less-than-five-year category. Source:( http://www.thehindubusinessline.com/2010/06/28/stories/2010062851010600.htm)

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4 Indian banks top Asia-Pacific in loan syndication

Four Indian Banks, including State Bank of India and IDBI Bank, figure amongst the top five banks in the Asia-Pacific region for arranging syndicated loans in 2010. Amongst Asia-Pacific countries, Indian entities have been most active in raising funds mostly from infrastructure projects in the power and airports segments. The total value of loans syndicated by four banks was about $ 4.66 billion. There is a wide gap between loan amount syndicated by Indian banks and that by the number one player (Bank of Taiwan) at $ 12.78 billion since January, according to Thomson Reuters data. SBI, the countrys largest lender, with a mandate for five deals raised $ 1.58 billion followed by IDBI Bank ($ 1.41 billion in three deals), Axis bank ($ 980 million) and ICICI Bank ($ 686 million).

as on 2010
Syndicated Loans: A Fact-Sheet

Bookrunner Proceeds ($ millions)

Year-to-Date Market Share Number of Deals [Type a quote from the document or the summary of an interesting (%) point. You can position the text box anywhere in the document. Use the Text Box Tools tab to change the formatting of the pull 40.9 9.0 quote text box.] 5.1 5.0 4.5 3.1 2.2 3.0 4.0 2.0 47 | P a g e

Bank of Taiwan State Bank of India IDBI Bank Axis Bank ICICI Bank

12785.6 1588.0 1410.2 980.8 686.5

Standard Chartered PLC Taiwan Co-op Bank DBS Group Holdings Fubon Financial Holding Co Land Bank of Taiwan Top ten total Source: Thomson Reuters Source:

633.0 475.7 362.0 345.0 275.9 19542.7

2.0 1.5 1.2 1.1 0.9 62.5

7.0 8.0 6.0 9.0 7.0 60.0

http://www.business-standard.com/india/news/4-indian-banks-top-asia-pacific-in-loansyndication/388697/

Recommendation:
Debt syndication has a great potential to grow. Since this has just started existing players can seize this opportunity and strengthen their client base before the competition gets in. IDBI formally started syndication and advisory services in February 2006 and has performed pretty well in the last four years. Some of the recommendations are as follows. Identifying business is one of the most important part in Project Financing. A specialized team can be formed who would do their research on upcoming projects in India and would do a prima- facie analysis of the projects and also give them ratings accordingly. More emphasis should be given on project appraisal as it gives additional comfort to the lender, the borrower and also to the participative banks. A participative bank would be interested in funding to a less risk based project and a project which has a good agent banker behind it so having a reputation of making good appraisals will boost the syndication department by fastening its process of getting participation from banks. 48 | P a g e

To have a good client base is what a bank would like. Trust and long-term relationships with clients would help a bank a lot in the long run so for this providing good service is very important. The process of loan syndication shouldnt take time because in today time every business would like to get started as soon as possible hence quick services have a lot of importance in the market.

Every borrower should be provided customized loan syndication so that he comes again and again for his requirements. A package of products can also be prepared like if a customer is opting for loan syndication he can choose any one or 2 products from the following Corporate and pre-bid advisory services Carbon credit finance and advisory services IPO monitoring Mergers & acquisition advisory services Business and Share Valuation Advisory on Financial and corporate restructuring Equity Syndication And in this case you can either charge him less for the above services or can also waive of the charges. It would be according to the clients relationship with the bank and on the amount of loan syndication he has opted for accordingly.

A bank can provide end to end services for the project. As in syndication a bank looks over the project from the beginning so it has a good knowledge as how the project is going and also would be aware of its suppliers, distributers and other agents so a bank can look to provide banking services to these suppliers and distributers. Banks need to nurture well-established relationships with banking community for Syndication. They also need to develop capability to harmonize needs of participants and close transactions quickly. Banks have been actively in syndication of rupee term loan and in the near future should enter global syndication. Accordingly they need to develop proper set up with regards to the conditions.

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Conclusion:
Debt syndication is an important source of financing for the company. As India is growing its economy is booming it needs a good support from its banks so that the money can be utilized effectively for the development of the country. Infrastructure plays an important role in development of any economy. So you need proper funding from the sources. Debt syndication is an effective lending product for a bank and institutions which diversifies the risk of project funding and abides the government norms and also helps the project in developing by giving end to end services. Being the agent banker a bank can earn a good amount of fee based income from debt syndication. Debt syndication also gives a good support to the project by keeping a track on its activities through its agents, so with this the project is evaluated by the company and also by the bank which helps it to run smoothly.

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With few public sector banks have made earnest beginning in the area of loan syndication, there is an urgent need for them to place themselves in a strategic position by adopting right strategies. As huge business potential lies in this area, other public sector bank can also explore this area as a source of alternative revenue stream. With its rich experience and reputation Public sector banks can capture the major chunk of loan syndication business both in domestic and overseas market. To conclude Debt Syndication is an excellent product for a bank and an excellent source of income for a company. Many companies are favoring debt syndication as it saves a lot of time and a lot of activities are done by the bank itself. Debt syndication is done by specialized professionals which works well for the companies point of view. So with a great potential debt syndication market is still not exposed and so banks have a good opportunity to earn some good income before the competition strikes in.

Annexure Commercial Banks

Allahabad Bank Andhra Bank ABN AMRO Bank American Express Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Centurion Bank Citi Bank Corporate Bank Dena Bank Development Credit Bank HDFC Bank HSBC Indian Bank IDBI Bank Indian Overseas Bank IndusInd Bank ICICI Bank Oriental Bank of Commerce Punjab National bank(PNB) Standard Chartered Bank State Bank Of India Syndicate Bank UCO Bank United Bank of India Union Bank of India Vijaya Bank

Other Financial Institutes

Export Import Bank (EXIM Bank) National Housing Bank (NHB) 51 | P a g e

Indian

Renewable

Energy

Development National bank for Agriculture and Rural Development (NABARD) Small Industries Development Bank(SIDBI) National Small Industries Corporation Ltd. (NSIC) Rural Electrification Corporation (REC) Infrastructure Leasing & Financial Services

Agency Ltd. (IREDA) Power Finance Corporation (PFC) Tourism Finance Corporation of India Ltd. National Highways Authority of India (NHAI) India Infrastructure Finance Company (IIFC)

Ltd (IL&FS) Housing and Urban Development Corporation SREI Infrastructure Finance Ltd (SIFL) Ltd. (HUDCO) Industrial Finance Corporation of India (IFCI) Industrial Investment Bank of India (IIBI) West Bengal Financial Corporation(WBFC) Industrial Investment Bank of India (IIBI)

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