Loan Syndication: 1. Pre-Signing Stage

Loan Syndication
Loan syndication is the process of involving several different lenders in providing various portions of
loan. Loan syndication most often occurs in situations where a borrower requires a large sum of capital
that may be too much for a single lender to provide or outside the scope of a lender's risk exposure
levels. Thus, multiple lenders work together to provide the borrower with the capital needed.
Syndicated Loan
A syndicated loan, also known as a syndicated bank facility, is a loan offered by a group of lenders –
referred to as a syndicate – who work together to provide funds for a single borrower. The borrower
could be a corporation, a large project or a sovereignty, such as a government. The loan can involve a
fixed amount of funds, a credit line or a combination of the two.
A syndicated loan is one that is provided by a group of lenders and is structured, arranged, and
administered by one or several commercial banks or investment banks known as lead arrangers.
Mechanism of Loan Syndication

1. Pre-Signing Stage: Includes time period covering following two phases:
• Pre-mandate stage. During this phase, the details of the proposed transaction are discussed and
finalized through an indicative Term Sheet. After finalization of Term Sheet, a Letter of Mandate is
obtained from the borrower. This time period is rarely shorter than one month and can be as long as
one year.
• Post-mandate stage. During this phase, loan syndication takes place and facility agreements are
negotiated and finalized. It is concluded by a closing or signing ceremony. This phase may take six to
eight weeks.
2. Post-Signing Stage: Period covering after execution/ signing of syndication loan and security
documents till full and final adjustment of syndicated loan facility.
Pre mandate stage

1. Selection/Identification of customer for syndication.
2. Negotiation with the customer about terms and conditions of the proposed structure of the
syndication deal.
3. Preparation of a Term Sheet reflecting the outcome of discussion and negotiation between the lead
arranger and the borrower. A term sheet is a document, which is not generally intended to be legally
binding until it forms part of a formal offer, setting out the main agreed terms and conditions to a
transaction between the borrower and arranger.
4. Finalization of Term Sheet for obtaining a Letter of Mandate from the borrower. Mandate is the
authority to act in the marketplace on behalf of the borrower according to agreed terms and conditions.
Post mandate stage

1. Preparation the Information memorandum (IM).
2. Launching the syndication deal (arranging a road show).
3. Instruct legal counsel to start drafting documentation.
4. Sell the deal.
5. Visit to the project site.
6. Getting “CIP” (Commitment in Principle).
7. Obtaining Final Approval.
8. Negotiate documentation with the borrower.
9. Negotiate documentation with the banks.
10. Allocate the deal among participants based on fund raising status.
11. Arrange closing ceremony and signing, and Post-Signing stage starts.
Advantages of Loan Syndication

For Lenders
1. Diversification/sharing of risks, cost sharing and pooling of resources and reputation.

2. Participating banks play useful roles by providing informative opinions and/or additional expertise
even after the funding has been extended.
3. Popular scheme for financing large and medium scale projects.
4. Syndicated loan facilitates competition for business by insinuating other banks to supply market
information to a business in hopes of gaining recognition.
5. Syndicated facilities bring to the businesses the best prices in aggregate and spare the companies
their time and effort that could have gone waste in individual dealing with each bank.
6. Syndicate Lending also increases feedback in the sense how the banks are willing to share viewpoints
on contemporary issues about the business that they are otherwise unwilling to share with the
borrowing business.
For Borrowers
1. Borrowers enjoy flexibility in structure and pricing, such that they have a variety of options in
structuring their syndicate loans, including multi-currency options, risk management techniques, and
prepayment rights without penalty.
2. They also clear visibility in the open market for the borrower. Bunn remarked that rating agencies
viewed a multi-year syndicate lending as a much stronger support than several bilateral one-year credit
arrangements.
3. The opportunity for the borrower to establish a track record with many banks from just a single
transaction.
4. The ability of the customer to deal with single Bank/FI (“Lead Bank” and “Agent Bank”) as a one-stop
service point.
Present Scenarios of Loan Syndication of Bangladesh
Term loans provided by the financial system in Bangladesh amount to only about US$250-300 million
per year, equivalent to about 1.5 percent of Gross Domestic Product (GDP), while private and public
investment amounts to about 16 percent of GDP. A major constraint to the provision of term loans is the
lack of a well-developed long-term savings market. Nationalized Commercial Banks (NCBs) fund their
term loans mainly with their deposits creating a maturity mismatch.
Bangladesh’s syndicated loan market is growing fast, as more private local banks in a group have come
forward to lend different organizations because of the less risk in such banking product, according to
bankers. The 2008 data from major market playing banks show a 60% rise in such lending over the last
year. The total syndicated loan this year stands around Tk.2,500 core, while it was Tk.1,500 core in 2007.
 In 2007 Prime Bank lend to Syndicated loan 200 core, Eastern Bank lend to Syndicated loan 300
core & Standard Chartered Bank lend to Syndicated loan 766 core.
 In 2008 Syndicated loan increase from 2007, Prime Bank Lend to Syndicated loan 300 core,
Eastern Bank lend to Syndicated loan 380 core, Standard Chartered Bank lend to Syndicated
loan1139 core.
Issues that should be take into consideration for better future in Loan
Syndication
1. Cash flow based financing is less practiced in our country; we should definitely take steps to adopt this
practice more.
2. We need to be prudent and quicker in introducing newer financing solutions.
3. More involvement with DFIs and international lenders is required.
4. Scope of adoption and accommodation of additional terms and conditions after launching of an IM
should be present.
5. Agency unit should be under one roof with deal execution unit to minimize disruption in service delivery
throughout the loan tenure.
6. All stakeholders in the syndication deal should overcome the challenges of financing new and innovative
projects.
7. Issues related to foreign and multilateral lenders should be addressed.
8. Norms of international syndication should be adopted in the local syndication deals.
9. Bangladesh needs to develop a benchmark interest rate like LIBOR that will work as a reference rate for
determining interest rate in syndication and other complex financing.
10. PPP projects will create more opportunities for syndication; we must be prepared to capitalize the
benefits of such initiative.
11. Legal due diligence should be made easier and as per international standard.
12. Social and environmental due diligence should be addressed while assessing a project's merit.
Assignment On
Loan Syndication
Prepared For
Md. Alamgir Hossen
Assistant Professor
Course Instructor
Bank Management, Fin-303
Prepared By
Asrafuzzaman
ID 1907
BBA 25th Batch
Institute of Business Administration

Jahangrinagar University
Date of Submission
25th April, 2018

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What are the stages involved in loan syndication?

What are some advantages of loan syndication for lenders and borrowers?

Loan Syndication

Mechanism of Loan Syndication

Pre mandate stage

Post mandate stage

Advantages of Loan Syndication

1. Diversification/sharing of risks, cost sharing and pooling of resources and reputation.

Institute of Business Administration

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