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Utsav Parekh
With the increase in interest rates the trend in the India's loan syndication venues are still topping charts
Major firms are gaining on the syndication route as it seems prominent as for the prediction that there might be high demand close to 10,000 crores in the last quarter of 2011.
IDBI commercial banking CEO. MR Rao - stated that many domestic companies still prefer loan route on the expansion plans, hence making the market of high ticket deals during last quarter. There are certain sectors which continue to explore the Opportunities for their projects in infrastructure, real estate with few in emerging markets. While market leader’s talk about the initiation of the expenditure cycle as the same could play a significant role in credit growth Since FY 06 - FY 07. With a lot of talks in the markets and among various banks, it was concluded that with accounts getting stronger.
At the corporate level, it’s predicted that there will be a huge credit demand from corporates which is yet to come. Lot of Indian banks are increasingly raising money through syndicated loans abroad to meet funding requirements. Relatively good investors’ appetite for these small- ticket loans and their cheaper cost have made syndicated loans popular among Indian blankets A sizeable fund raised via syndicated loan is around $100 - 250 million, while the tenure ranges from one to three years. Bankers have stated that with Lack of investors' appetite for large ticket issuance's corporates are also looking to raise money in small portions through multiple loan syndication's.
A set example is, Rural Electrification Corporation (REC) raised $300 million from investors in Singapore and Hong Kong at 180 basis point above the six-month Libor (London inter-bank offer rate) in august. The company plans to raise another $250 mn by mid-October through this route at 195 basis points above six month Laborite company has given State Bank of India a mandate to manage the issue. "Inclusive of all costs, the rate of raising funds through loan syndication comes to 7,5 per cent currently. One also has an advantage of lesser withholding taxes compared to dollar bonds" states H D khunteta, chairman and Managing director of REC.The withholding the burden is 10percent for overseas loan, as compared to 20 per cent in case of foreign currency bond issuances. The Bank of India also raised $200mn through the same route recently.
Major challenges are with poor execution of the loan syndication process that can mean a damaged reputation, loss of fees and loss of cross-selling opportunities. You need an efficient process to exchange documents with all parties. A solution that won’t put unnecessary strain on your staff or budget. A solution that will shorten the syndication process, leading to quicker compensation and improved borrower relations.
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