Description
PROJECT ON CORPORATE BANKING
SYNDICATE LOAN
Consortium Lending
Corporate Banking
K A M A L K J I N D A L
Corporate banking
?
? ? ? ? ? ?
Financial services provided by Banks to the Corporate for meeting their banking and financial needs for Setting up new projects Expansion Diversification Modernization Financial restructuring Commercial Banking facilities
Features of Corporate Banking
? ? ? ?
?
? ? ?
?
?
Dealings with legal entities Prudential Exposure norms Prompt decision Competitive pricing-sub BPLR/Base rate Branch/Bank Infrastructure Sanctioning Powers Supervision and follow up Issues Consortium approach Syndication approach Transaction approach
CORPORATE FINANCE
TRADITIONAL FINANCE
IMPORT TRADE CREDIT
EXTERNAL COMMERCIAL BORROWINMG
Traditional Finance
?
?
? ?
Term loan for creation of fixed assets Working capital for day to day operations Letter of Credit for imports/purchases Bank Guarantee for Imports/purchases
Funding Options now
?
? ? ?
? ?
Commercial paper for meeting short term funding Buyer and Supplier Credit Import Trade credit [up to 3 years] External Commercial Borrowings [more than 3 years] Syndication Loan Structured Project Finance
COMMERCIAL PAPER
? Short term unsecured promissory note, freely negotiable by endorsement and delivery
?
?
Issued at a discount – discount rate freely determined by the market
Prior approval of RBI is not required – but the largest lender / consortium leader to take the proposal on record on the prescribed format Each CP issue (including roll-over) to be treated as a fresh issue.
?
COMMERCIAL PAPER
?
Denomination of CP note Maximum amount of CP issue Minimum tenor
: : : :
Rs. 25 lacks (+multiples of Rs.5 lacs) Delinked from working capital limit (fund based) 15 days 360 days
?
?
Maximum tenor
?
No Grace period for repayment of CP. If maturity date happens to be a holiday, payment will be made on the immediate preceding working day.
WHO CAN ISSUE ?
? ? ? ? ? Tangible net worth of at least Rs. 4 crores Working capital (fund sanctioned by a bank based) limit
Issuing company’s shares must be listed on at least one stock exchange Issuer should obtain a minimum credit rating of P1/P2 (CRISIL) or equivalents Credit rating should not be more than 2 months old at the time applying to RBI for approval Minimum current ratio of 1.33 mandatory but required by investors) (not
?
Why CP issue ?
? ? ? ? ? Low interest expenses Access to short term funding Flexibility (matching the exact amount and maturity with working capital requirement) Ease and low cost of establishment Investor recognition Higher yields Portfolio diversification
Benefits to the Investor
? ?
?
Flexibility and liquidity
Types of Corporate Services
Funded Services Non Funded Services Value Added Services
Funded Services
Working Capital Finance
? ?
The amount required to finance day to day operations is called working capital All enterprises require finance to perform day to day operations and to complete their operating cycles
Methods
?
? ?
Operating Cycle Method Turnover Method Cash Budget Method
Funded Services
?
Short Term Finance
This service essentially to provide funds for short term period of a year or less
Example of short term finance
Factoring : Raising funds on security of the company’s debt
Overdraft: Bank issues overdrafts with right to call them in short notice. The borrower is required to use OD to supplement working capital shortfall
Funded Services
?
Bill Discounting
Short tenure financing instrument for companies willing to discount their purchase/ sales to get funds for short run
Types ? Purchase bill discounting: Bank discounts the purchase bill of the company and pays the company who in turn pay the supplier
?
Sales bill discounting : Bank discounts the sales bill of the company and pays directly to the company. The investor gets his return from the company at the end of the discounting period.
Funded Services
?
?
Structured Finance
Consortium Lending
Services offered to the firms having unique finance needs
?
Syndicated Loan
Syndicated loans: is a large loan in which a group of banks work together to provide funds for a borrower.
?
Export Credit
A credit opened by an importer with a bank in an exporter's country to finance an export operation.
Consortium lending
?
? ? ?
?
Group of banks providing credit to a Corporate Big ticket finance Usually for working capital requirements Largest lender is consortium leader which also handles credit appraisal work and convener of consortium meetings Earlier, RBI guidelines stipulated formation of consortium when credit facilities exceed Rs 200 crores and also member bank share to be minimum 10% but not mandatory now
PSB BOM
CITI BANK
CORPORATE OBC JKB
CONSORTIUM LENDING
Consortium Lending
APPRAISAL
SECURITIES COMMON DOCUMENTATION
INSPECTION
Syndicated Loan
?
? ?
The corporate gives mandate to a Bank based upon the evaluation of various ‘Expression of Interest’ submitted by various banks The lead Arranger/Manager is the entity which wins the mandate The lead manager prepares Information Memorandum [ IM ]
Syndication loan
?
?
?
The IM is circulated by the Lead Manager for seeking commitments of different banks Based upon the response, Syndicate is formed of Banks/ FIs interested in lending to the Corporate Syndicate agrees for common secuirities, rate of interest, margin, common documentation common date for funding generally after a specific period from the signing ceremony
Syndicated loan
?
? ? ?
Signing ceremony is attended by the corporate borrower, and all the members of the Syndicate. All the documents are signed in this meeting Funding of the Loan account by the syndicate members. Sharing of Syndicate commission Release of Tomb stone’ advertisement
CORPORTE BORROWER Invites bids BEAUTY PARADE Syndicate Manager
INFORMATION MEMORANDUM
SYNDICATE FORMATION
SIGNING CEREMONY TOMB STONE ADVERTISEMENT SYNDICATE LOAN PROCEDURE
Non Funded Services
?
Letter of Credit
Letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount.
?
Bank guarantee
A bank guarantee is a one-way contract between a bank as the guarantor and a beneficiary as the party to whom a guarantee is made
Non Funded Services
?
Collection of documents
Full-fledged trade finance set-up catering to all trade related requirements which offers the following advantages Better turn around time through timely processing of documents Faster payments: constant follow-ups with correspondent banks ensure timely recovery of funds from buyers as well as timely payments to suppliers Lower cost Access to vast correspondent banking network for better reach Excellent trade support Arrangement of credit reports of overseas parties Specialized advice on international trade related issues as well as technical issues such as ECM requirements, RBI reporting, latest circulars and latest international developments
? ?
? ? ?
Value Added Services
? ?
Loan Syndication Real time Gross Settlement
For settling transactions of financial institutions, especially banks.
?
Cash Management Service
The management of the cash balances of an enterprise in such a fashion as to maximize the availability of cash not invested in fixed assets or inventories and also so as to avoid the risk of insolvency
?
Channel Financing
Channel Finance is to provide integrated commercial and financial solutions to the supply and distribution channels of a given industry. Channel Finance gives support to the commercial relationship between clients and their suppliers and customers
Import Trade Credit
?
Credit extended for imports directly by
Banks/FIs abroad overseas suppliers For original maturity of less than three years
?
?
?
IMPORT TRADE CREDIT
?
ADs permitted to approve trade credits for imports in to India up to USD 20 m per Import transaction with maturity period up to one year[from the date of shipment],for all permissible items Ads can approve trade credits up to USD20m for import of capital goods with maturity of more than one year and less than 3 years
?
ALL IN COSTS
?
Up to one year maturity
More than one year and less than three years
?
LIBOR+200bp
?
?
LIBOR+200bp
ADs GUARANTEES
Ads may issue any guarantee, letter of undertaking or letter of comfort in favour of overseas lenders without RBI approval
?Borrowings by Business Community from Foreign Sources ?ECBs are defined to include ? commercial banks loans.
External Commercial Borrowings
?Buyer’s credit, supplier’s credit
? securitised instruments such as floating rate notes, fixed rate bonds etc.
? from eligible lenders with minimum average maturity of 3 years
?ECB policy for fiscal year as a part of prudent debt management has ceiling of USD 15 bn announced for the year 2006-07 [USD12 bn in2005-06] with a sub limit of USD 250m of corporate debt buying by FIIs
Purpose
ECB can be raised for investment [import of capital goods] in new projects or expansion ,modernisation of existing production capacity in real sector-industrial sector including SMEs and infrastructure sector in India ?prepayments of previous high costs ECBs up to USD200m ?Housing Finance companies can issue FCCBs with approval from RBI
? for investments in the Disinvestment programme of the Govt
Automatic Route All in cost ceilings for ECB
3-5 years maturity ----------300bp over LIBOR
>5 years maturity ----------500bp over LIBOR All in cost includes Rate of interest, Other fees, Expenses in FC All in cost excludes Commitment fees ,prepayment fees and fee payable in Indian Rupees
Amount and Maturity of ECB
?
< $20m
>$20m < $500m $ 500m
?
?
Minimum average maturity of 3 years 5 years
?
?
?
Corporate limit to raise ECB in a financial year
NGOs engaged in Microfinance
?
$ 5m
?
FOREIGN CURRENCY : CAPITAL
?GDRs ?ADRs ?FCCBs ?JV Partners ?Private Equity Investors ?F.D. I. ?FIIs
Thank You
doc_860202009.ppt
PROJECT ON CORPORATE BANKING
SYNDICATE LOAN
Consortium Lending
Corporate Banking
K A M A L K J I N D A L
Corporate banking
?
? ? ? ? ? ?
Financial services provided by Banks to the Corporate for meeting their banking and financial needs for Setting up new projects Expansion Diversification Modernization Financial restructuring Commercial Banking facilities
Features of Corporate Banking
? ? ? ?
?
? ? ?
?
?
Dealings with legal entities Prudential Exposure norms Prompt decision Competitive pricing-sub BPLR/Base rate Branch/Bank Infrastructure Sanctioning Powers Supervision and follow up Issues Consortium approach Syndication approach Transaction approach
CORPORATE FINANCE
TRADITIONAL FINANCE
IMPORT TRADE CREDIT
EXTERNAL COMMERCIAL BORROWINMG
Traditional Finance
?
?
? ?
Term loan for creation of fixed assets Working capital for day to day operations Letter of Credit for imports/purchases Bank Guarantee for Imports/purchases
Funding Options now
?
? ? ?
? ?
Commercial paper for meeting short term funding Buyer and Supplier Credit Import Trade credit [up to 3 years] External Commercial Borrowings [more than 3 years] Syndication Loan Structured Project Finance
COMMERCIAL PAPER
? Short term unsecured promissory note, freely negotiable by endorsement and delivery
?
?
Issued at a discount – discount rate freely determined by the market
Prior approval of RBI is not required – but the largest lender / consortium leader to take the proposal on record on the prescribed format Each CP issue (including roll-over) to be treated as a fresh issue.
?
COMMERCIAL PAPER
?
Denomination of CP note Maximum amount of CP issue Minimum tenor
: : : :
Rs. 25 lacks (+multiples of Rs.5 lacs) Delinked from working capital limit (fund based) 15 days 360 days
?
?
Maximum tenor
?
No Grace period for repayment of CP. If maturity date happens to be a holiday, payment will be made on the immediate preceding working day.
WHO CAN ISSUE ?
? ? ? ? ? Tangible net worth of at least Rs. 4 crores Working capital (fund sanctioned by a bank based) limit
Issuing company’s shares must be listed on at least one stock exchange Issuer should obtain a minimum credit rating of P1/P2 (CRISIL) or equivalents Credit rating should not be more than 2 months old at the time applying to RBI for approval Minimum current ratio of 1.33 mandatory but required by investors) (not
?
Why CP issue ?
? ? ? ? ? Low interest expenses Access to short term funding Flexibility (matching the exact amount and maturity with working capital requirement) Ease and low cost of establishment Investor recognition Higher yields Portfolio diversification
Benefits to the Investor
? ?
?
Flexibility and liquidity
Types of Corporate Services
Funded Services Non Funded Services Value Added Services
Funded Services
Working Capital Finance
? ?
The amount required to finance day to day operations is called working capital All enterprises require finance to perform day to day operations and to complete their operating cycles
Methods
?
? ?
Operating Cycle Method Turnover Method Cash Budget Method
Funded Services
?
Short Term Finance
This service essentially to provide funds for short term period of a year or less
Example of short term finance
Factoring : Raising funds on security of the company’s debt
Overdraft: Bank issues overdrafts with right to call them in short notice. The borrower is required to use OD to supplement working capital shortfall
Funded Services
?
Bill Discounting
Short tenure financing instrument for companies willing to discount their purchase/ sales to get funds for short run
Types ? Purchase bill discounting: Bank discounts the purchase bill of the company and pays the company who in turn pay the supplier
?
Sales bill discounting : Bank discounts the sales bill of the company and pays directly to the company. The investor gets his return from the company at the end of the discounting period.
Funded Services
?
?
Structured Finance
Consortium Lending
Services offered to the firms having unique finance needs
?
Syndicated Loan
Syndicated loans: is a large loan in which a group of banks work together to provide funds for a borrower.
?
Export Credit
A credit opened by an importer with a bank in an exporter's country to finance an export operation.
Consortium lending
?
? ? ?
?
Group of banks providing credit to a Corporate Big ticket finance Usually for working capital requirements Largest lender is consortium leader which also handles credit appraisal work and convener of consortium meetings Earlier, RBI guidelines stipulated formation of consortium when credit facilities exceed Rs 200 crores and also member bank share to be minimum 10% but not mandatory now
PSB BOM
CITI BANK
CORPORATE OBC JKB
CONSORTIUM LENDING
Consortium Lending
APPRAISAL
SECURITIES COMMON DOCUMENTATION
INSPECTION
Syndicated Loan
?
? ?
The corporate gives mandate to a Bank based upon the evaluation of various ‘Expression of Interest’ submitted by various banks The lead Arranger/Manager is the entity which wins the mandate The lead manager prepares Information Memorandum [ IM ]
Syndication loan
?
?
?
The IM is circulated by the Lead Manager for seeking commitments of different banks Based upon the response, Syndicate is formed of Banks/ FIs interested in lending to the Corporate Syndicate agrees for common secuirities, rate of interest, margin, common documentation common date for funding generally after a specific period from the signing ceremony
Syndicated loan
?
? ? ?
Signing ceremony is attended by the corporate borrower, and all the members of the Syndicate. All the documents are signed in this meeting Funding of the Loan account by the syndicate members. Sharing of Syndicate commission Release of Tomb stone’ advertisement
CORPORTE BORROWER Invites bids BEAUTY PARADE Syndicate Manager
INFORMATION MEMORANDUM
SYNDICATE FORMATION
SIGNING CEREMONY TOMB STONE ADVERTISEMENT SYNDICATE LOAN PROCEDURE
Non Funded Services
?
Letter of Credit
Letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount.
?
Bank guarantee
A bank guarantee is a one-way contract between a bank as the guarantor and a beneficiary as the party to whom a guarantee is made
Non Funded Services
?
Collection of documents
Full-fledged trade finance set-up catering to all trade related requirements which offers the following advantages Better turn around time through timely processing of documents Faster payments: constant follow-ups with correspondent banks ensure timely recovery of funds from buyers as well as timely payments to suppliers Lower cost Access to vast correspondent banking network for better reach Excellent trade support Arrangement of credit reports of overseas parties Specialized advice on international trade related issues as well as technical issues such as ECM requirements, RBI reporting, latest circulars and latest international developments
? ?
? ? ?
Value Added Services
? ?
Loan Syndication Real time Gross Settlement
For settling transactions of financial institutions, especially banks.
?
Cash Management Service
The management of the cash balances of an enterprise in such a fashion as to maximize the availability of cash not invested in fixed assets or inventories and also so as to avoid the risk of insolvency
?
Channel Financing
Channel Finance is to provide integrated commercial and financial solutions to the supply and distribution channels of a given industry. Channel Finance gives support to the commercial relationship between clients and their suppliers and customers
Import Trade Credit
?
Credit extended for imports directly by
Banks/FIs abroad overseas suppliers For original maturity of less than three years
?
?
?
IMPORT TRADE CREDIT
?
ADs permitted to approve trade credits for imports in to India up to USD 20 m per Import transaction with maturity period up to one year[from the date of shipment],for all permissible items Ads can approve trade credits up to USD20m for import of capital goods with maturity of more than one year and less than 3 years
?
ALL IN COSTS
?
Up to one year maturity
More than one year and less than three years
?
LIBOR+200bp
?
?
LIBOR+200bp
ADs GUARANTEES
Ads may issue any guarantee, letter of undertaking or letter of comfort in favour of overseas lenders without RBI approval
?Borrowings by Business Community from Foreign Sources ?ECBs are defined to include ? commercial banks loans.
External Commercial Borrowings
?Buyer’s credit, supplier’s credit
? securitised instruments such as floating rate notes, fixed rate bonds etc.
? from eligible lenders with minimum average maturity of 3 years
?ECB policy for fiscal year as a part of prudent debt management has ceiling of USD 15 bn announced for the year 2006-07 [USD12 bn in2005-06] with a sub limit of USD 250m of corporate debt buying by FIIs
Purpose
ECB can be raised for investment [import of capital goods] in new projects or expansion ,modernisation of existing production capacity in real sector-industrial sector including SMEs and infrastructure sector in India ?prepayments of previous high costs ECBs up to USD200m ?Housing Finance companies can issue FCCBs with approval from RBI
? for investments in the Disinvestment programme of the Govt
Automatic Route All in cost ceilings for ECB
3-5 years maturity ----------300bp over LIBOR
>5 years maturity ----------500bp over LIBOR All in cost includes Rate of interest, Other fees, Expenses in FC All in cost excludes Commitment fees ,prepayment fees and fee payable in Indian Rupees
Amount and Maturity of ECB
?
< $20m
>$20m < $500m $ 500m
?
?
Minimum average maturity of 3 years 5 years
?
?
?
Corporate limit to raise ECB in a financial year
NGOs engaged in Microfinance
?
$ 5m
?
FOREIGN CURRENCY : CAPITAL
?GDRs ?ADRs ?FCCBs ?JV Partners ?Private Equity Investors ?F.D. I. ?FIIs
Thank You
doc_860202009.ppt