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1. Loan syndication
A loan offered by a group of lenders (called 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 may involve fixed amounts, a credit line, or a combination of the two.
Interest rates can be fixed for the term of the loan or floating based on a benchmark rate such as
the London Interbank Offered Rate (LIBOR).
Typically there is a lead bank or underwriter of the loan, known as the "arranger", "agent", or
"lead lender". This lender may be putting up a proportionally bigger share of the loan, or perform
duties like dispersing cash flows amongst the other syndicate members and administrative tasks.
2. Interest rate swap
An interest rate swap is a financial derivative that companies use to exchange interest rate
payments with each other.
Swaps are useful when one company wants to receive a payment with a variable interest rate,
while the other wants to limit future risk by receiving a fixed-rate payment instead.
Each group has their own priorities and requirements, so these exchanges can work to the
advantage of both parties.
One party gets to hedge the risk associated with their security offering a floating interest rate,
while the other can take advantage of the potential reward while holding a more conservative
asset. Its a win-win situation, but its also a zero-sum game. The gain one party receives through
the swap will be equal to the loss of the other party. While youre neutralizing your risk, in a
way, one of you is going to lose some money.
Interest rate swaps are traded over the counter, and if your company decides to exchange interest
rates, you and the other party will need to agree on two main issues:
1.

Length of the swap. Establish a start date and a maturity date for the swap, and know
that both parties will be bound to all of the terms of the agreement until the contract
expires.

2.

Terms of the swap. Be clear about the terms under which youre exchanging interest
rates. Youll need to carefully weigh the required frequency of payments (annually,

quarterly, or monthly). Also decide on the structure of the payments: whether youll use an
amortizing plan, bullet structure, or zero-coupon method.
3. FIPB and Joint Venture formation
FIPB
Foreign Investment Promotion Board (FIPB) has been set up by the Government of India to
ensure expeditious clearance of foreign investments proposals in various sectors.
The Foreign Investment Promotion Board (FIPB), housed in the Department of Economic
Affairs, Ministry of Finance. FIPB is the apex inter-ministerial body of the Central Government
that deals with proposals relating to Foreign Direct Investments (FDI) into India for
projects/sectors that do not qualify for automatic approval by the Reserve Bank of India (RBI) or
are outside the parameters of the existing FDI policy, as formulated by Department of Industrial
Policy and Promotion (DIPP), Ministry of Commerce and Industry.
Joint Venture formation
A joint venture is described as an association between a group of persons (natural or legal
entities) who enter into an agreement to do business together or to undertake a particular project,
without
losing
their
independent
corporate
structures.
A joint venture not only minimizes the risk factors involved in entering into a new business
area, but also reduces the costs involved. By allowing entry into a foreign jurisdiction, a joint
venture unlocks potential business opportunities and provides new learning experiences for the
concerned business entities, which is especially helpful in emerging countries such as India.
Joint ventures in India require governmental approvals, if a foreign partner or an NRI or PIO
partner is involved. The approval can be obtained either from RBI or FIPB (Foreign
Investment Promotion Board). In case, a joint venture is covered under automatic route, then
the approval of Reserve bank of India might be required. In other special cases, not covered
under the automatic route, a special approval of FIPB is required and then no further RBI
permission is to be sought.
In India, there are no separate laws or set of principles governing the formation, conduct, and
termination of joint ventures. However, the agreements that will regulate an Indian joint venture
should be construed in accordance with Indian general principles and rules in force, and should
comply with some requirements imposed by Indian law concerning the transfer of technology.
The receipt of governmental approvals may also be necessary.
Venture capital

A venture capitalist is a person who invests in a business venture, providing capital for start-up
or expansion. The majority of venture capital (VC) comes from professionally-managed public
or private firms who seek a high rate of return by (typically) investing in promising startup or
young businesses that have a high potential for growth but are also high risk. VC firms typically
invest in business sectors such as IT, bio-pharmaceuticals, clean technologies, semiconductors,
etc.
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Private Equity Funding
Investing into a Business
Venture Capital Investors
VC Funding
Invest Startup
An investment from a venture capitalist is a form of equity financing - the VC investor supplies
funding in exchange for taking an equity position in the company. Equity financing is normally
used by non-established businesses that are unable to secure business loans from financial
institutions (debt financing) due to insufficient cash flow, lack of collateral, or high risk profile.
VC investments in businesses are typically long-term (the average is from five to eight years).
This is normally how long it takes for a young business to mature to the point where its equity
shares have value and the company goes public or is bought out. VC firms expect returns on
investment of 25% or greater given the risk profile of the companies they invest in.
VC firms obtain investment capital by pooling money from pension funds, insurance companies,
and wealthy investors. The firm makes the decisions about which businesses to invest in and
receives management fees and a percentage of the profits as compensation. VC firms range in
size from small (capital pools of a few million dollars, typically investing in only a few new
businesses each year) to huge (billions of dollars in assets and invested in hundreds of
companies).
4. Sources of foreign currency finance of company
External borrowing: These include loans obtained at high rates of interest with long maturity
period and commercial borrowings. The major sources of concessional loans have been the
International Monetary Fund (IMF),Aid India Consortium (AIC), Asian Development Bank
(ADB), World Bank(International Bank for Reconstruction and Development) and International
Financial Corporation, US Exim Bank, the Japanese Exim Bank, Export Credit and Guarantee
Corporation of U.K.
FDI : The foreign investments in our country are generally done in the form of foreign direct
investment (FDI) or through foreign collaborations. The foreign direct investment usually refers
to the subscription by the foreigners to shares and debentures of the Indian Companies. This is

also known as portfolio investment and covers their subscription to ADRs, GDRs and FCCBs
(Foreign Currency Convertible Bonds).
Other sources: ADR (American depositary receipt).

GDR (Global depositary receipt).

FCCBs (Foreign Currency Convertible Bonds).

5. Role and functions of investment banker

The sale of stocks and bonds is one of the primary ways for a company to raise capital. But
executing these transactions requires special expertise, from pricing financial instruments in a
way that will maximize revenue to navigating regulatory requirements. Thats where an
investment bank usually comes into the picture.
In essence, investment banks are a bridge between large enterprises and the investor. Their main
roles are to advise businesses and governments on how to meet their financial challenges and to
help them procure financing, whether it be from stock offerings, bond issues
or derivative products.
Role as an advisor
Deciding how to raise capital is a major decision for any company or government. In most cases,
they lean on an investment bank either a large Wall Street firm or a boutique banker for
guidance.
Taking into account the current investing climate, the bank will recommend the best way to raise
funds. This could entail selling an ownership stake in the company through a stock offer or
borrowing from the public through a bond issue. The investment firm can also help determine
how to price these instruments by utilizing sophisticated financial models.
In the case of a stock offering, its financial analysts will look at a variety of different factors
such as earnings potential and the strength of the management team to estimate how much a
share of the company is worth. If the client is offering bonds, the bank will look at prevailing
interest rates for similarly rated businesses to figure out how much it will have to compensate
borrowers.
Investment banks also offer advice in a merger or acquisition scenario. For example, if a business
is looking to purchase a competitor, the bank can advise its management team on how much the
company is worth and how to structure the deal in a way thats favorable to the buyer.
Underwriting stocks and bonds

If an entity decides to raise funds through an equity or debt offering, one or more investment
banks will also underwrite the securities. This means the institution buys a certain number of
shares or bonds at a predetermined price and re-sells them through an exchange.
Suppose Acme Water Filter Company hopes to obtain $1 million in an initial public offering.
Based on a variety of factors, including the firms expected earnings over the next few years,
Federici Investment Bankers determines that investors will be willing to pay $11 each for
100,000 shares of the companys stock. As the sole underwriter of the issue, Federici buys all the
shares at $10 apiece from Acme. If it manages to sell all 100,000 at $11, the bank makes a nice
$100,000 profit (100,000 shares x $1 spread).
However, depending on its arrangement with the issuer, Federici may be on the hook if the
publics appetite is weaker than expected. If it has to lower the price to an average of $9 a share
to liquidate its holdings, its lost $100,000. Therefore, pricing securities can be tricky. Investment
banks generally have to outbid other institutions who also want to handle the transaction on
behalf of the issuer. But if their spread isnt big enough, they wont be able to squeeze a healthy
return out of the sale.
In reality, the task of underwriting securities often falls on more than one bank. If its a larger
offering, the managing underwriter will often form a syndicate of other banks that sell a portion
of the shares. This way, the firms can market the stocks and bonds to a larger segment of the
public and lower their risk. (L9) The manager makes part of the profit, even if another syndicate
member actually sells the security. (L18)
Investment banks perform a less glamorous role in stock offerings as well. Its their job to create
the documentation that must go to the Securities and Exchange Commission before the company
can sell shares. (L9) This means compiling financial statements, information about the
companys management and current ownership and a statement of how the firm plans to use the
proceeds. (L9)
Other activities
While advising companies and helping them raise money is an important part of what Wall Street
firms do, most perform a number of other functions as well. In fact, most major banks are highly
diversified in terms of the services they offer. Some of their other income sources include:

Research Larger investment banks have large teams that gather information about
companies and offer recommendations on whether to buy or sell their stock. They may
use these reports internally but can also generate revenue by selling them to hedge funds
and mutual fund managers.

Trading and Sales Most major firms have a trading department that can execute stock
and bond transactions on behalf of their clients. (L8) In the past, some banks have also
engaged in proprietary trading, where they essentially gamble their own money on
securities; however, a recent regulation known as the Volcker Rule has clamped down on
these activities.

Asset Management The likes of J.P. Morgan and Goldman Sachs manage huge
portfolios for pension funds, foundations and insurance companies through their asset
management department. Their experts help select the right mix of stocks, debt
instruments, real estate trusts and other investment vehicles to achieve their clients
unique goals.

Wealth Management Some of the same banks that perform investment banking
functions for Fortune 500 businesses also cater to everyday investors. Through a team of
financial advisors, they help individuals and families save for retirement and other longterm needs.

Securitized Products These days, companies often pool financial assets from
mortgages to credit card receivables and sell them off to investors as a fixed-income
products. An investment bank will recommend opportunities to securitize income
streams, assemble the assets and market them to institutional investors.

6. Sources of financing for infrastructure projects :

An infrastructure project will involve financing from various sources, in some
combination of equity and debt. The ratios of these different contributions will depend on
negotiations between the lenders and the shareholders. This section looks at the main
sources of financing and the agreement in the financing puzzle that governs the
relationship between the different investors, the inter creditor agreement.
Equity Contributions
Debt Contributions
Bank Guarantees/ Letter of Credit/ Performance Guarantees
Bond/Capital Markets Financing
Mezzanine/Subordinated Contributions
Inter creditor Agreement