Tanzania received a $1 billion syndicated loan arranged by the Trade and Development Bank (TDB) for infrastructure projects in November 2019. Examples of Notable Loan Syndications in Tanzania include:ġ. Unnecessary delay can therefore be caused by all counterparties to a transaction.į. Finally, since syndicated lending is still in its infancy compared to the European market, there remains a lack of understanding amongst some borrowers, local law firms and even lenders regarding the syndication process and the workings of the international finance markets generally. Many deals remain ‘un-bankable’ whether because of poor structure, lack of quality technical advice, poor governance or a lack of sponsor/off-taker/management track-record Deal execution remains problematic, particularly for infrastructure transactions that require long-term funding and carry construction risk. In particular, registries (such as those set up to deal with land or security registration) may be cumbersome and even inaccurate. From a legal risk perspective, concerns centre on the perfection and registration of security, notably in relation to land. Changing regulations which pose a challenge to the syndicated loan market FX volatility, since the syndicated loan market remains predominantly a USD market In the 2016 East Africa Syndicated Loan Conference notable key challenges facing the syndicated loan market included: The syndicated loan market is still in its infancy stages in East Africa and in particular in Tanzania. Challenges facing the loan syndications market in East Africa However, syndication also possess various risks such as losses especially if market conditions change after an underwriting commitment is given but the syndication process has not been complete.Į. Lenders: For banks, syndication enables the diversification of portfolio risks and it provides a means to earn noninterest income particularly if they adopt various roles. However, it should be noted that the syndication process may take a long time as approvals to changes may need to be agreed by all parties and syndication may be costly. Banks also receive net income fees from the loan.īorrowers: For borrowers, notable benefits include the ability to raise larger amounts of funds than a single lender would be able to raise. Examples of such fees include those fees paid upon the completion of the syndication process such as participation and underwriting fees and other fees such as commitment fees, facility fees and utilization fees. Fees are generally expressed in basis points and are based on the current size of the commitment. The various parties to a syndication receive fees based on the size of their commitment, the risk of the borrower, and their role in the syndication structure. Club deals are unlikely to be traded in the secondary market. Such banks are often existing bankers to the borrower, which makes such deals easier and quicker to complete. Club deal: This is a deal that is privately arranged by a small group of banks, often three to five in number. If this is the case and the syndication is undersubscribed, the deal may not proceed or might only proceed for a lower amount. Best efforts deal: This is a deal where the lead arranger does not underwrite any or all the loan amount because the level of demand is unclear. This ensures that the borrower receives the full amount of the loan (less any fees), but it can result in the underwriters having a higher exposure than planned if they are unable to sell down the loan to their target hold amount before or soon after drawdown. Underwritten: In an underwritten deal, the lead arranger and/or a small group of co-underwriters agree to underwrite the full loan amount. There are generally three types of the syndicate: Borrower: this is the party that grants mandate Agent bank – is the bank that is responsible for administering the loan provide the borrower funding if the loan is not fully subscribed) Underwriting bank – A bank that agrees to underwrite the loan (i.e. Participating bank – A bank that agrees to accept a portion of the risk Bookrunner: A bank that manages the process of forming the syndicate Lead bank/ Arranger: Who is responsible for arranging the syndication loan There are usually numerous parties to a Syndication including: The loan can involve a fixed amount of funds, a credit line, or a combination of the two. The borrower can be a corporation, a large project, or a sovereign government. A syndicated loan, also known as a syndicated bank facility, is financing offered by a group of lenders (referred to as a syndicate) who work together to provide funds for a single borrower.
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