Guidelines on Syndicated Loan Business
Chapter I General Provisions
Article 1 These guidelines are formulated in accordance with the Law of the People’s Republic of China on Banking Regulation and Supervision, the Law of the People’s Republic of China on Commercial Banks, the Contract Law of the People’s Republic of China, the Guarantee Law of the People's Republic of China and other laws and regulations, so as to promote and regulate syndicated loan business, diversify credit risk, enhance inter-bank cooperation and provide better financial services for key enterprises and projects.
Article 2 The guidelines shall apply to domestic banks and non-bank financial institutions (hereinafter referred to as the “banks”) that are approved by the China Banking Regulatory Commission (CBRC) to engage in loan businesses.
Article 3 Syndicated loans in these guidelines refer to the business that two or more banks make loans or credit authorization in local and/or foreign currencies to a borrower through a correspondent bank at an agreed time and proportion stipulated in a loan agreement.
Article 4 Banks that make syndicated loans shall, in line with the state’s laws, regulations and credit policies, respect equality and mutual benefits, make fair negotiation, honestly carry out agreements and bear their own risks.
Article 5 The bankers association, being a self-regulatory organization for the industry, shall charge responsibilities of maintaining the order of syndicated loan market, solving the problems rising from syndicated loans or transactions, collecting and disclosing relevant information, and formulating trade pledge.
Chapter II Member Banks of A Syndicated Loan
Article 6 Banks that participate in a syndicated loan are member banks. The member banks shall determine their own credit lines pursuant to the principles of sharing information, making decisions and approval independently and taking sole responsibility for their own risk. Concurrently, they enjoy corresponding rights and assume relevant obligations to the extent of their respective credit lines.
Article 7 The member banks of a syndicated loan are generally divided into a lead bank, a correspondent bank and participating banks, etc. according to their functions in the syndicated loan business. Where necessary, the co-lead bank or other functional positions can be arranged to assume relevant responsibilities in line with the agreement.
Article 8 The lead bank is an arranging bank agreed by the borrower to organize a bank consortium and syndicate the loan to member banks.
Article 9 The main functions of the lead bank are as follows:
1) Launching and organizing a syndicated loan, and sell the loan in part to member banks;
2) Conducting due diligence investigation on the borrower before lending, drafting information memorandum, and introducing the loan to potential participating banks;
3) Negotiating loan terms with the borrower on behalf of the bank consortium;
4) Employing relevant agencies to draw legal documents up;
5) Organizing member banks to sign a written agreement with the borrower;
6) Assisting the correspondent bank in managing the loan;
7) Other responsibilities as prescribed in the agreement.
Article 10 Where one bank acts as the lead bank, it shall take no less than 20 per cent of the total loan amount and leave no less than 50 per cent to other lenders.
Article 11 According to the lead bank’s loan percentage, the business can be classified into exclusive loan distribution, part loan distribution and sales promotion of the loan with maximum efforts.
Article 12 The correspondent bank can be either the lead bank or the other one elected by the bank consortium, which disburses the loan to the borrower in line with the terms and timeframe stipulated in the agreement and manages the loan entrusted by the consortium according to the prescribed duties.
Article 13 Main functions of the correspondent bank are as follows:
1) Overseeing and urging the borrower to implement the loan agreement and disbursing the loan or conducting other related credit businesses;
2) Handling the guarantee formalities as well as the management thereof;
3) Laying out a scheme to manage related accounts, opening a special account to manage the loan fund, and recording every change of the fund;
4) Informing member banks of transferring their committed fund to an designated account at the agreed time or when the borrower applies for disbursement;
5) Receiving the principal, interest and fees, and distributing them promptly to the designated accounts of member banks according to their disbursed proportion;
6) Responsible for after-loan management, monitoring and examining the loan use, and regularly reporting the results to member banks;
7) Paying close attention to the financial status of the borrower, especially the material events, such as merger and acquisition (M&A), equity dividend, investment, assets transfer, debt reorganization, etc. that occur during the loan period and may influence the borrower’s repayment capability. If any, the correspondent bank shall, according to the agreement, make a special report to all member banks within three working days from the date of receiving the information;
8) Once the borrower breaches the agreement, the correspondent bank shall organize member banks in a timely manner to settle the loan with proper preservation measures such as asset liquidation and collection, recovery, etc.
9) Organizing and convening bank consortium meetings and harmonizing the relations among members;
10) Accepting consultation and checkups by member banks; handling other issues entrusted by the consortium.
Article 14 The correspondent bank shall take responsibilities with due diligence. If any loss occurs because of the correspondent bank’s neglect of duty or nonfeasance, the bank consortium meeting shall have the power to replace the bank pursuant to the loan agreement and require the bank to cover the loss. Relevant detailed stipulations can be stated in the agreement or other documents.
Article 15 The participating banks are the ones that accept the invitation from the lead bank to syndicate the loan and make disbursement to the borrower according to their committed credit lines.
The main functions of participating banks are to attend bank consortium meetings, transfer full amount of fund in a timely manner to the account designated by the correspondent bank; be aware of changes on the borrower’s daily operations and credit status, and inform the correspondent bank of unusual issues in time.
Article 16 A guarantee bank is normally arranged in a syndicated loan, which is of a complicated guarantee structure, to be responsible for guaranteeing the loan as well as transferring and managing the collateral security (pledges).
Chapter III Initiation and Preparation
Article 17 It is encouraged to pursue the way of syndicated loans under any of the following circumstances:
1) Financing a large business group or project, or the working capital with a large amount;
2) The fund demanded by one single enterprise or project exceeds 10 per cent of the lender’s capital;
3) The credit line to one single business group exceeds 15 per cent of the lender’s capital;
4) The borrower selects banking institutions to raise fund by means of competitive negotiation.
All local bankers associations may organize their own members to lay out minimum credit lines for syndicated loans based on the above circumstances and real situations in the regions.
Article 18 The initiator of a syndicated loan shall be the borrower or the lender. The lead bank that is selected or agreed by the borrower shall reach preliminary agreement with the borrower on loan terms, and draw up a letter with the terms.
Article 19 According to the Guidelines on the Due Diligence Relating to Commercial Banks’ Credit Activities, the lead bank shall make due diligence investigation on the borrower or its project before lending, negotiate with the borrower in advance on the loan usage, credit line, interest rate, maturity, form of guarantee, conditions for loan withdrawal, means of repayment, relevant charges, etc., and help compile a loan information memorandum based on these as well.
Article 20 The information memorandum of a syndicated loan, as one of the key references for potential participating banks to consider their credit lines and propose suggestions thereof, shall be compiled by the borrower with the lead bank’ assistance based on beforehand due diligence investigation. The memorandum will be distributed to potential participating banks by the lead bank.
The memorandum shall mainly include: basic conditions for applying for a syndicated loan; the legal status and financial situation of the borrower; the overall introduction about the project as well as related analysis of market and cash flow; introduction about the guarantor or collateral security; ownership of the pledge; risk profiles and countermeasures; approval documents for the project; environmental assessment documents of the project issued by authorized environmental protection institutions, etc.
Article 21 When preparing the information memorandum, the lead bank shall faithfully disclose all real information of the borrower to potential participating banks, and make sure the information included in the memorandum are authentic, complete and correct in substance.
Article 22 The information memorandum shall be reviewed by the borrower and the guarantor before being sent to other banks. The borrower and the guarantor shall sign a statement that they are responsible for the authenticity and completeness of the contents in the memorandum.
Article 23 In order to improve the independency, fairness and authenticity of the documentation like information memorandum, the lead bank can employ external agencies, such as accounting firms, assets appraisal firms, law firms as well as relevant technologists, to examine and appraise or compile related information and material and then write out opinions.
Article 24 After conferring with the borrower, the lead bank can send the potential participating banks invitation letters enclosing a list of conditions for lending, information memorandum, confidential note, letter of commitment for making loans, etc.
Being an offer sent by the lead bank to potential participating banks, the invitation letter is also a valid legal document that allows the lead bank, on behalf of the borrower, to invite other banks to join in the syndication in accordance with the major loan conditions stated in the letter as well as in the enclosures.
Article 25 Those banks who have received the invitation letters shall determine whether to join in the syndication or not based on the information memorandum and other data about the borrower. And the decision-making process shall be in compliance with the principles of sharing information, making decisions and approval independently and taking sole responsibility for their own risk. Where the information memorandum is not adequate enough for the potentials to approve credit, the lead bank is obligated to offer additional information or provide relevant advice, or even the potentials can make investigation directly by themselves.
Article 26 The lead bank shall, according to the feedbacks from invited banks, reasonably work out the credit lines for every consortium member. Where over-subscription or short-subscription occurs among members, the lead bank can redistribute the lines based on pre-stipulated conditions or the negotiation results with the borrower.
Chapter IV Syndicated Loan Agreement
Article 27 A syndicated loan agreement is a kind of legal document that is signed by the borrower and the guarantors, a consortium of banks as lenders after their adequate negotiation and according to relevant laws and regulations, which mainly stipulates the rights and obligations of the three parties. The following clauses shall be included in a syndicated loan agreement:
1) Basic information of the parties involved;
2) Definitions and explanations;
3) Stipulations related to the loan, including loan amount and currency, maturity, lending rate, usage, repayment means and resources, guarantee scheme, conditions for maturity extension, stipulations for repayment beforehand, etc.;
4) Loan ceilings and timeframe for fund transfer agreed by every member bank;
5) Preconditions for loan withdrawal;
6) Terms on charges;
7) Terms on taxes;
8) Binding clause on finance;
9) Non-financial commitments, including restrictions on assets disposal, business alteration, information disclosure, etc.;
10) Breaches and settlement;
11) Applicable laws;
12) Other supplementary documents.
Article 28 The rights and obligations related to the member banks may be stipulated in the loan agreement or be separately included in the Internal Agreement of the Bank Consortium (also called the Agreement Among Lenders of Bank Consortium for the Syndicated Loan, etc.). The rights and obligations mainly include: work division among members, specific rights and obligations, allocation of the total loan, transfer of credit lines; procedures for bank consortium meetings, retreat of members and dissolution of consortium, default and liabilities, disputes settlement, other issues that are required by laws and regulations or considered necessary by the consortium.
Article 29 Member banks shall promptly transfer full amount of fund and strictly perform their functions and obligations in line with the loan agreement.
Article 30 The borrower shall, in accordance with the loan agreement, ensure the loan is used as scheduled, transfer the principal and interest to the correspondent bank in time, and provide true information to the consortium.
Chapter V Management of Syndicated Loans
Article 31 The daily management work of a syndicated loan shall be mainly undertaken by the correspondent bank. The lead bank shall, in its loan period, assist the correspondent bank in following up the project progress, so as to discover possible problems in time and inform member banks in written as soon as possible.
Article 32 In the loan period, the lead bank or the correspondent bank is usually responsible for convening bank consortium meetings, which may also be called by a joint proposal of over one third of the members. A bank consortium meeting is held to discuss material issues related to the syndicated loan management.
Article 33 The material issues discussed in a bank consortium meeting may include: revising the loan agreement, adjusting credit lines, changing collateral security or interest rates, terminating the loan, informing the borrower’s M&A or important connected transactions, determining the borrower’s breaches or defaults, reorganizing the loan, replacing the correspondent bank, etc.
Article 34 When maturity arrives, the borrower shall repay the exact amount of principal and interest as scheduled. Where the borrower plans to make the payment in advance, it shall inform the correspondent bank at least 60 working days before the latest payment date, and repay the principal and interest first to the credit that expires last with the assent of lenders according to the loan agreement as well as the maturity sequence.
Where the borrower repays ahead of schedule, the lenders may charge a certain amount of fine for breaching the agreement according to the abrupt change in repayment time and amount. Specific fine proportion may be prescribed in the loan agreement.
Article 35 Where some risk emerges and affects the loan payment, the correspondent bank shall call a bank consortium meeting, set up a creditors committee to work out measures with a view to collecting, preserving and restructuring the loan. Where necessary, the lenders may enter arbitration or a lawsuit to the People’s Court.
Article 36 In the loan period, any member bank shall not in principle make loans or credits other than the syndicated loan to the same project, which may harm the interests of the rest of members.
Article 37 In case that the borrower is found out committing the following activities and refuses to make correction during the loan business, the correspondent bank shall convene a bank consortium meeting to investigate the borrower’s liability and inform in written the borrower as well as the guarantors:
1) Relevant documents provided by the borrower prove to be invalid;
2) Failing to perform or abide by the obligations specified in the loan agreement;
3) Failing to repay the principal and interest as stipulated in the agreement;
4) Escaping from the bank debt by means of false bankruptcy;
5) Other breaches as prescribed in the agreement.
Article 38 In case that any member bank involves in the following activities that are determined to be breaches of the agreement by bank consortium meetings, the bank will be punished to compensate for its doings. Where the circumstances are serious, legal liabilities shall be investigated. The dissension among member banks shall not influence the implementation of loan agreement signed between the lender consortium and the borrower.
1) Failing to transfer full amount of fund within the stipulated timeframe after having been noticed by the correspondent bank;
2) Drawing back the loan ahead of schedule or retreating from the bank consortium without consensus of all members;
3) Failing to execute resolutions of bank consortium meetings;
4) The correspondent bank fails to transfer in time as scheduled the principal and interest repaid by the borrower to the lenders;
5) Other activities violating the loan agreement, these guidelines as well as other relevant rules and regulations.
Article 39 Where a member bank plans to transfer its part of the syndicated loan in line with the clauses of the agreement, it shall inform the borrower and the correspondent bank in advance. Where the agreement requires the consent of the borrower for any loan transfer, the bank shall obtain the consent beforehand.
Article 40 Member banks shall regularly deliver information about the loan to local bankers associations, including the size of selling and holding the loan in the initial market, the transferred loans in the secondary market, the lending rate and charges of the loan, the loan terms, conditions of guarantee, credit rating of the borrower, etc.
Article 41 The banks who conduct syndicated loan business shall, according to these guidelines and their own operation and management capability, lay out the business policy and put in place related management mechanisms to control the loan risks, and designate relevant departments or staff to take care of daily operations.
Article 42 The banks who make a syndicated loan to a large business group shall ward off the risks rising from the connected transactions within the group or from cross-guarantee activities among the connected parties. Where connected transactions or cross-guarantee activities frequently occur in the group, the lenders shall conduct stringent reviews on the creditworthiness of the borrower and rein in loan-makings.
Chapter VI Charges for A Syndicated Loan
Article 43 The charges for a syndicated loan are intermediate fees charged by member banks for providing the borrower with finance advice, fundraising, credit guarantee, legal consultation and other financial services. These charges shall be included in the fee-based business management.
The charges shall be reasonably priced through negotiation between the borrower and the lenders based on the voluntary and fair principle, and shall be stated in the loan agreement or in an expense note.
Article 44 The charges may include arrangement fee, commitment fee, agent fee, etc., which shall be shared only among those members who provide corresponding services to the borrower.
The arrangement fee is normally paid in a lump-sum at a certain proportion of the total loan amount; the commitment fee is usually paid once a year according to the agreement at a certain proportion of unused balance; the agent fee may be paid annually according to the workload of the correspondent bank.
Article 45 The borrower shall pay the charges in line with the principle of “who borrows, who pays”. The category and amount of the charges shall be negotiated by the lenders and the borrower rather than be simply priced by lending rates plus basic points.
Article 46 The lead bank shall not append any unreasonable terms to member banks, shall not increase competition in the syndicated loan market by offering services with free charges, and shall not bundle up other financial products to sell to or charge member banks or the borrower for other fees at the excuse for loan preparation.
Chapter VII Supplementary Provisions
Article 47 The guidelines are subject to the interpretation of the CBRC. Where there is discrepancy between these guidelines and previously promulgated rules related to syndicated loans, these guidelines shall prevail.
Article 48 The guidelines shall become effective as of the date of promulgation.
Copyright: China Banking Regulatory Commission