Standard Definition

In a syndicated loan, one or several banks that are authorized to make loans serve as the lead bank(s), and a number of banks and non-bank financial institutions join them in forming a banking group; they sign the same agreement with the borrower and provide financing for the borrower on the same terms.  International bank syndicates are formed by banks from different countries. 

This loan targets large and medium companies, business groups and major national construction projects that require a large amount of credit.

Use

Large-amount, long-term financing.

Categories

There are two kinds of syndicated loans.

1¡¢Direct Syndicated Loans

All members of the banking group appoint a correspondent bank that disburses, recovers, and manages the loan.  International syndicated loans are mostly direct loans.

2¡¢Indirect Loans

The lead bank makes a loan to the borrower, and then sells shares of the loan to other banks.  The loan is managed, disbursed and recovered by the lead bank.

Currencies and Terms

1¡¢Currencies

The syndicated loan is offered in both the RMB and foreign currencies.

2¡¢Terms

The syndicated loan has flexible terms, ranging from three-five years, to ten-twenty years, but generally it has seven- to ten-year terms.  The loan term comprise three periods, namely the available period, the grace period, and the repayment period.  The borrower may sets it own loan term within reasonable limits.

Price

The price is made up of both interest and fees.

£±¡¢Interest rate: fixed-rate or floating rate.

£²¡¢Fees

For an international syndicated loan, the borrower also pays fees such as the commitment fee, management fee, agent fee, arrangement fee and miscellaneous fees.

£¨£±£©(Commitment Fee)

Within the loan term, apart from paying interest on the disbursed portion of the loan, the borrower also pays a commitment fee because the bank is committed to providing the remaining portion of the loan, and thus endures losses of interest. 

£¨£²£©(Management Fee)

The borrower pays the lead bank a management fee, because the lead bank organizes the banking group, drafts documents and negotiates with the borrower.  This fee is usually paid within 30 days of signing the loan agreement.  

£¨£³£©(Participant Fee)

This fee is shared among the members of the banking group according to each member¡¯s share of the loan.

£¨£´£©(Agent Fee)

The borrower pays the correspondent bank an agency fee for its management of the loan, interest calculation and loan disbursement.

£¨5£©Miscellaneous Fees

The borrower pays the lead bank miscellaneous fees to cover expenses incurred when the lead bank organizes the banking group and arranges for the signing ceremony, such as the communications fee, printing fee, and attorney fee.

The charges are set according to PBC and CCB regulations.

Service Providers and Networks

The client may apply to the credit department of CCB, which manages syndicate loan business.  International syndicated loans are managed by CCB headquarters or primary branches.

Client Process

1¡¢Client Application

The client applies for a syndicated loan to the credit department of CCB branch where it has its bank account.

2¡¢Agency Letter

The bank conducts initial investigation and market assessment, and if it finds the project viable, it issues a Syndicated Loan Recommendation to the client.  The client must confirm the recommendation within five days.  After the client accepts the syndicated loan recommendation, it gives the lead bank a mandate.  The client must provide the bank with required documents, such as its operations permit or share-holder registration documents, and financial statements; if the client applies for an international syndicated loan, it must also provide the government planning agency¡¯s approval, and the approval or commitment of the foreign exchange administration.

3¡¢Contract

The arranging bank prints the formal loan document after all participating banks confirm the modified loan document with it.  The client will receive the arranging bank¡¯s invitation to sign the syndicated loan contract (or agreement).

4¡¢Loan Use

Upon completion of the procedures, the correspondent bank will disburse the loan to the client¡¯s account within the specified timeframe, and the client may begin to use the loan.

5¡¢Repayment

The client draws funds according to contracts, charters and the law.  Then it uses its profit and appreciation allowances to pay the loan.  Each time the client pays the principal, interest and fees, it must transfer the payment to an account designated by the correspondent bank before 11 am of the designated date, and the correspondent bank will distribute the loan payment to the participating banks in proportion on the same date.