FINANCIAL MANAGEMENT

LIVE PROJECT ON:

LOAN SYNDICATION
 What is Loan Syndication?

• Loan Syndication is a lending process in which

a group of lenders provide funds to a single
borrower.
How Loan Syndication Work?

• When a project is unusually large or complex,

it may exceed the capacity of a single lender.
For example:
The amount of the loan may be too large, the
risks too high, the collateral may be in
different locations, or the uses of capital may
require special expertise to understand and
manage it.
Why Loan Syndication matters?

• Loan Syndication can be a useful tool for

banks to maintain a balanced portfolio of loan
assets among a variety of industries.
• If one loan is too large, it may overweight the
bank’s portfolio.
• Therefore, banks may pursue a syndication to
accommodate a loan and keep its portfolio in
balance.
 Research done on: TATA SONS

• TATA Sons is raising $500 million in the first

tranche of its scheduled offshore borrowing,
the proceeds from which will likely be used to
fund multiple ongoing expansion and
restructuring plans.
• Eight global lenders, including Standard
Chartered Bank, DBS Bank, MUFG, Sumitomo
Mitsui Banking Corporation(SMBC) and Scotia
Bank; are expected to syndicate this loan.
 Regulatory Scenario

Lead lenders Under Stricter

regulation

Participant Bank

Lead lenders Under

looser regulation
 Regulatory Scenario
• How does cross-country • Does regulation-driven
differences in capital syndication generate
stringency affect the economic consequences
pairing between for borrowers and
participant and lead lenders?
banks?  Focus on globally
 Examine the syndicate syndicated loans
formation by banks from extended to U.S firms
44 countries  Participants from strictly
 Results consistent with regulated countries tend
predictions of Regulatory to select borrowers that
Arbitrage. are smaller, unrated and
have less tangible assets.
 Regulatory Arbitrage

Regulators face higher information asymmetry

in assuming the risk level of foreign loans
Why syndicate instead of direct lending?
Banks can rely on a loosely-regulated lead
arranger who has expertise to prospect, scrun
and monitor.
 Developments Under:
Loan Syndication
• The emergence of a group of large syndication
banks that operate more like investment banks
than commercial banks.
• The rapid growth in non-investment grade
portion of the market, offering higher fees to
underwriters and higher yields to investors.
• The emergence of loans as a new asset class, with
a unique set of investment properties, which has
attracted the participation of non-bank
institutional investors.
• The growth of an active and relatively liquid
secondary market for loans, supported by
standardized trading arrangements.
 Conclusion
• This special feature has presented a historical
review of the development of the market for
syndicated loans.
• The syndicated loan market has advantages
for junior and senior lenders.
• Primary loan syndications and the associated
secondary market therefore allow a more
efficient geographical and institutional sharing
of risk origination and risk taking.
• For instance-
Loan Syndications for emerging market
borrowers tend to be originated by large US
and European banks, which subsequently
allocate the risk to local banks.
• However, we find that the geographical
integration of the market appears to vary
among regions, as reflected in varying degrees
of international penetration.
Thank You!
-ARADHNA SAXENA
Submitted By
19BSP3764
SEC-E