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Syndicated Loan Transactions as an Alternative to Large Scale Funding by Commercial Banks (Transaksi Kredit Sindikasi Sebagai Alternatif Penyediaan Dana Skala Besar Oleh Bank Umum)
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In response to the BMPK (Maximum Lending Limit) that regulates banks regarding the maximum value of lending, syndicated loan (joint financing) provides as a solution. Syndicated loan is usually made when the loan proposed by the debtor exceeds the BMPK. This is also regulated in POJK No. 32/POJK.03/2018 which states that syndicated loan is one of the controlling effort to overcome the concentration of funds provision in credit. With syndicated loan, the debtor can obtain a loan in accordance with the amount proposed and the participating banks can remain compliant to the BMPK provisions.
In Indonesia, syndicated loan were initially regulated in Surat Edaran Bank Indonesia No. 6/33/UPK dated 3 October 1973, Surat Edaran Bank Indonesia No. 11/26/UPK Year 1979. Furthermore, syndicated loan is mentioned in Bank Indonesia Regulation No. 7/14/PBI/2005 and Surat Edaran Bank Indonesia No. 7/23/DPD Year 2005. However, there are no specific regulations governing syndicated loan agreements.
Definition of the Syndicated Loan Agreement
A Syndicated Loan Agreement is a credit agreement containing loans or credits granted by several bank creditors known as participants, to a debtor which is usually a legal entity with the aim of financing one or several debtor projects. The distinctive feature of this agreement is that, although there are several creditors (collectively referred to as syndicated creditors), the provision of credit is set out in a single Syndicated Loan Agreement. This Syndicated Loan Agreement is arranged and structured by an Arranger, and its implementation is managed by several Agents whom are generally the participating banks of the syndicated creditors. The percentage of loan provided by each participating bank will determine the amount of voting rights owned by each participating bank in the Syndicated Loan Agreement.
Parties in the Syndicated Loan
Based on the definition of a Syndicated Loan Agreement, the parties to a Syndicated Loan Agreement are creditors (banks, financial institutions) and debtors. Parties to a Syndicated Loan Agreement consist of:
1. Debtor is the party who applies for credit to a commercial bank.
2. Arranger or Lead Manager is a bank in charge of gathering and offering participating banks in syndicated transactions as well as bringing together debtors with registered syndication participants.
3. Bank Participant are banks participating in the syndication.
4. Agent consisting of Facility Agent in charge of administration, Security Agent in charge of guarantees, and Escrow Agent in charge of managing escrow accounts.
The Required Documents
The documents that need to be prepared in arranging a Syndicated Loan Agreement include:
1. Credit application document from the debtor.
2. Documents related to the debtor's company or project to be financed.
3. An offer letter (with terms and conditions memo and documents from the debtor attached) from the arranger to other banks or financial institutions to join the syndicated loan.
4. Approval letter and credit portion and terms and conditions from each bank participants.
Subsequently, the debtor and syndicated creditors will sign the Syndicated Loan Agreement, security binding deed, and other necessary deeds. Some issues that need to be considered by the parties in drafting a Syndicated Loan Agreement include:
1. If the Syndicated Loan Agreement involves foreign currency loans, there must be a lead bank, the project must be a productive business, and the foreign bank's contribution must be greater (Article 9 of PBI No. 7/14/PBI/2005);
2. Arrangement of rights, obligations, and responsibilities of the participants;
3. Regulation of the rights, obligations, and responsibilities of the debtor to the creditors;
4. The necessity to conduct publicity/tombstone after the formation of the Syndicated Loan Agreement as a form of public announcement;
5. Putting the agreement in a notarial deed.
Debtors must also pay attention to the following matters when applying for syndicated loan:
1. Debtors are required to provide collateral/guarantee given the large amount of credit proposed. Personal Guarantees such as borgtocht, bank guarantees and corporate guarantees, or Property Guarantees of both movable and immovable objects can be provided by the debtor such as land or buildings, vehicles, machinery, accounts, securities and others. Guarantees will generally be registered in the name of the Guarantee Agent while also mentioning the names of each participating bank as a creditor.
2. The management of syndicated loans will be mandated or authorized from the debtor to the Arranger, therefore the debtor needs to ensure that the Arranger understands the debtor’s credit needs so that negotiations with prospective participating banks can produce results as needed.
3. Debtors must voluntarily allow the Arranger to conduct audits or reviews of the debtor's projects or offices.
4. In addition to the obligation to pay debts, Debtors need to pay a number of costs required for the implementation of syndicated loans such as:
a. Arrangement fee for the Arranger who has formed the syndication;
b. Underwriting fee for the Arranger who has underwritten the facility;
c. Management fee paid to the banks participating in the management group;
d. Participation fee to participating banks;
e. Pool fee based on commitment level;
f. Agency fee to agent banks; and
g. Commitment fee.
Both creditors and debtors in a Syndicated Loan Agreement can also be required to report the existence of a Syndicated Loan Agreement. This is regulated in SEOJK No. 03/SEOJK.03/2021, which states reporting in the form of participating banks reporting debtors provided with syndicated loan facilities or debtors reporting the existence of syndicated loans.
Conclusion:
Syndicated Loan Agreement is a credit agreement involving many parties such as debtors, Arrangers and participating banks to finance one or more projects, both private and government projects, with a large credit value compared to banking loans in general.
The main obligation of the debtor in a syndicated transaction is to provide collateral in accordance with the syndicated loan value agreed by the participating banks and pay a fee agreed by the debtor with the Arranger or appointed Agents.
Click DOWNLOAD PDF to read this Article in Indonesian version
+62 21 2963 8070 or drop us an email at mail@ksplaw.co.id.
In response to the BMPK (Maximum Lending Limit) that regulates banks regarding the maximum value of lending, syndicated loan (joint financing) provides as a solution. Syndicated loan is usually made when the loan proposed by the debtor exceeds the BMPK. This is also regulated in POJK No. 32/POJK.03/2018 which states that syndicated loan is one of the controlling effort to overcome the concentration of funds provision in credit. With syndicated loan, the debtor can obtain a loan in accordance with the amount proposed and the participating banks can remain compliant to the BMPK provisions.
In Indonesia, syndicated loan were initially regulated in Surat Edaran Bank Indonesia No. 6/33/UPK dated 3 October 1973, Surat Edaran Bank Indonesia No. 11/26/UPK Year 1979. Furthermore, syndicated loan is mentioned in Bank Indonesia Regulation No. 7/14/PBI/2005 and Surat Edaran Bank Indonesia No. 7/23/DPD Year 2005. However, there are no specific regulations governing syndicated loan agreements.
Definition of the Syndicated Loan Agreement
A Syndicated Loan Agreement is a credit agreement containing loans or credits granted by several bank creditors known as participants, to a debtor which is usually a legal entity with the aim of financing one or several debtor projects. The distinctive feature of this agreement is that, although there are several creditors (collectively referred to as syndicated creditors), the provision of credit is set out in a single Syndicated Loan Agreement. This Syndicated Loan Agreement is arranged and structured by an Arranger, and its implementation is managed by several Agents whom are generally the participating banks of the syndicated creditors. The percentage of loan provided by each participating bank will determine the amount of voting rights owned by each participating bank in the Syndicated Loan Agreement.
Parties in the Syndicated Loan
Based on the definition of a Syndicated Loan Agreement, the parties to a Syndicated Loan Agreement are creditors (banks, financial institutions) and debtors. Parties to a Syndicated Loan Agreement consist of:
1. Debtor is the party who applies for credit to a commercial bank.
2. Arranger or Lead Manager is a bank in charge of gathering and offering participating banks in syndicated transactions as well as bringing together debtors with registered syndication participants.
3. Bank Participant are banks participating in the syndication.
4. Agent consisting of Facility Agent in charge of administration, Security Agent in charge of guarantees, and Escrow Agent in charge of managing escrow accounts.
The Required Documents
The documents that need to be prepared in arranging a Syndicated Loan Agreement include:
1. Credit application document from the debtor.
2. Documents related to the debtor's company or project to be financed.
3. An offer letter (with terms and conditions memo and documents from the debtor attached) from the arranger to other banks or financial institutions to join the syndicated loan.
4. Approval letter and credit portion and terms and conditions from each bank participants.
Subsequently, the debtor and syndicated creditors will sign the Syndicated Loan Agreement, security binding deed, and other necessary deeds. Some issues that need to be considered by the parties in drafting a Syndicated Loan Agreement include:
1. If the Syndicated Loan Agreement involves foreign currency loans, there must be a lead bank, the project must be a productive business, and the foreign bank's contribution must be greater (Article 9 of PBI No. 7/14/PBI/2005);
2. Arrangement of rights, obligations, and responsibilities of the participants;
3. Regulation of the rights, obligations, and responsibilities of the debtor to the creditors;
4. The necessity to conduct publicity/tombstone after the formation of the Syndicated Loan Agreement as a form of public announcement;
5. Putting the agreement in a notarial deed.
Debtors must also pay attention to the following matters when applying for syndicated loan:
1. Debtors are required to provide collateral/guarantee given the large amount of credit proposed. Personal Guarantees such as borgtocht, bank guarantees and corporate guarantees, or Property Guarantees of both movable and immovable objects can be provided by the debtor such as land or buildings, vehicles, machinery, accounts, securities and others. Guarantees will generally be registered in the name of the Guarantee Agent while also mentioning the names of each participating bank as a creditor.
2. The management of syndicated loans will be mandated or authorized from the debtor to the Arranger, therefore the debtor needs to ensure that the Arranger understands the debtor’s credit needs so that negotiations with prospective participating banks can produce results as needed.
3. Debtors must voluntarily allow the Arranger to conduct audits or reviews of the debtor's projects or offices.
4. In addition to the obligation to pay debts, Debtors need to pay a number of costs required for the implementation of syndicated loans such as:
a. Arrangement fee for the Arranger who has formed the syndication;
b. Underwriting fee for the Arranger who has underwritten the facility;
c. Management fee paid to the banks participating in the management group;
d. Participation fee to participating banks;
e. Pool fee based on commitment level;
f. Agency fee to agent banks; and
g. Commitment fee.
Both creditors and debtors in a Syndicated Loan Agreement can also be required to report the existence of a Syndicated Loan Agreement. This is regulated in SEOJK No. 03/SEOJK.03/2021, which states reporting in the form of participating banks reporting debtors provided with syndicated loan facilities or debtors reporting the existence of syndicated loans.
Conclusion:
Syndicated Loan Agreement is a credit agreement involving many parties such as debtors, Arrangers and participating banks to finance one or more projects, both private and government projects, with a large credit value compared to banking loans in general.
The main obligation of the debtor in a syndicated transaction is to provide collateral in accordance with the syndicated loan value agreed by the participating banks and pay a fee agreed by the debtor with the Arranger or appointed Agents.
Click DOWNLOAD PDF to read this Article in Indonesian version
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