Project Appraisal-Financing Projects

Project Appraisal
Financing Projects
Syndication
"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." "A syndicated facility is a lending facility, defined by a single loan arrangement, in which several or many banks participate." Sharing of risk by many banks; sharing of total loss-liability Lead Bank concept Same terms & condition of the all banks
When is Syndication a right solution?

A BORROWER WANTS TO RAISE A RELATIVELY LARGE AMOUNT OF MONEY QUICKLY AND CONVENIENTLY. THE AMOUNT EXCEEDS THE EXPOSURE LIMITS OR APPETITE OF ANY ONE LENDER. THE BORROWER DOES NOT WANT TO DEAL WITH A LARGE NUMBER OF LENDERS.
Roles within Syndication Process

1. Lead Manager/ Arranger
a) This bank is awarded the mandate by the prospective borrower b) Responsible for placing the debt paper with other banks and ensuring that the syndication is fully subscribed
2. Underwriting Bank a) The bank that commits to fill the gap in the fund raising b) May be arranging bank or any other bank 3. Participating Banks a) Banks Lending a portion of the loan to the kitty b) The bank that follows the lead bank for terms & conditions of the loan
Roles (Contd..)
4. Facility Manager/Agent a) The one that takes care of the ADMINISTRATIVE ARRANGEMENTS OVER THE TERM OF THE LOAN (E.G. DISBURSEMENTS,REPAYMENTS, COMPLIANCE). b) Acts for the banks c) May be arranging/ underwriting the bank d) In larger syndication may be Co-arranger and Co-manager
Pricing
FEES FOR FRONT-END ACTIVITIESARRANGEMENT AND UNDERWRITING FEES. INTEREST (MARGIN OVER BASE RATE). COMMITMENT FEES FOR AVAILABLE BUT UNDRAWN FUNDS. AGENCY FEES -PAYABLE FOR ADMINISTRATIVE ACTIVITY DURING THE TERM OF THE LOAN.
Benefits of loan syndications for borrowers

Syndicated loans provide borrowers with a more complete menu of financing options. In effect, the syndication market completes a continuum between traditional private bilateral bank loans and publicly traded bond markets. This has resulted in a more competitive corporate finance market, which has permitted issuers to achieve more market-oriented and cost-effective financing.
Syndication - The End
Islamic Financing
Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Sharia) principles and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called riba in Islamic discourse. In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haraam (such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values). In the late 20th century, a number of Islamic banks were created, to cater to this particular banking market. The basic principle of Islamic Banking is the sharing of the profit and loss rather than collection of Riba (Interest) The concepts that are used for Islamic Banking are: Profit Sharing Joint Venture Cost plus margin Leasing
Islamic Banking (contd..)

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the fact that it is profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabaha. Another approach is , which is similar to . Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).
Islamic Banking (contd..)

There are several other approaches used in business deals. Islamic banks lend their money to companies by issuing floating rate interest loans. The floating rate of interest is pegged to the company's individual rate of return. Thus the bank's profit on the loan is equal to a certain percentage of the company's profits. Once the principal amount of the loan is repaid, the profit-sharing arrangement is concluded. This practice is called Musharaka. Further, Mudaraba is venture capital funding of an entrepreneur who provides labor while financing is provided by the bank so that both profit and risk are shared. Such participatory arrangements between capital and labor reflect the Islamic view that the borrower must not bear all the risk/cost of a failure, resulting in a balanced distribution of income and not allowing lender to monopolize the economy. And finally, Islamic banking is restricted to Islamically acceptable deals, which exclude those involving alcohol, pork, gambling, etc. Thus ethical investing is the only acceptable form of investment, and moral purchasing is encouraged. Islamic banking is an example of full-reserve banking, with banks achieving a 100% reserve ratio.[2] However, in practice, this is not always the case.[3]
Sharia Advisory Council

Islamic banks and banking institutions that offer Islamic banking products and services (IBS banks) are required to establish Shariah advisory committees/consultants to advise them and to ensure that the operations and activities of the bank comply with Shariah principles. In Malaysia, the National Shariah Advisory Council, which additionally set up at Bank Negara Malaysia (BNM), advises BNM on the Shariah aspects of the operations of these institutions and on their products and services. (See: Islamic banking in Malaysia)
Equator Principle
Equator Principles - Definition

Project financing, a method of funding in which the lender looks primarily to the revenues generated by a single project both as the source of repayment and as security for the exposure, plays an important role in financing development throughout the world. Project financiers may encounter social and environmental issues that are both complex and challenging, particularly with respect to projects in the emerging markets. The Equator Principles Financial Institutions (EPFIs) have consequently adopted these Principles in order to ensure that the projects financed are developed in a manner that is socially responsible and reflect sound environmental management practices. By doing so, negative impacts on project-affected ecosystems and communities should be avoided where possible, and if these impacts are unavoidable, they should be reduced, mitigated and/or compensated for appropriately. Adoption of and adherence to these Principles offers significant benefits to funding agencies, borrowers and local stakeholders through borrowers engagement with locally affected communities. The role as financiers affords us opportunities to promote responsible environmental stewardship and socially responsible development.
Equator Principles
EPFIs will consider reviewing these Principles from time-to-time based on implementation experience, and in order to reflect ongoing learning and emerging good practice. These Principles are intended to serve as a common baseline and framework for the implementation by each EPFI of its own internal social and environmental policies, procedures and standards related to its project financing activities. We will not provide loans to projects where the borrower will not or is unable to comply with our respective social and environmental policies and procedures that implement the Equator Principles.
The 10 Principles
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Review & categorization Social & Environmental Assessment Applicable Social & Environmental Standards Action Plan & Management Systems Consultation & Disclosures Grievance & Mechanism Independent Review Covenants Independent Monitoring and Reporting EPFI Reporting
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Project Appraisal-Financing Projects

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Project Appraisal

When is Syndication a right solution?

Roles within Syndication Process

Benefits of loan syndications for borrowers

Syndication - The End

Islamic Banking (contd..)

Islamic Banking (contd..)

Sharia Advisory Council

Equator Principles - Definition

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