NEW SYNDICATE LOAN RULES PERPLEX EXPERTS
October 01, 2007 | BY
clpstaffChina's Guidelines on Bank Syndicate Loan Business, promulgated by the China Banking Regulatory Committee on August 11 2007, and effective as of the date…
China's Guidelines on Bank Syndicate Loan Business, promulgated by the China Banking Regulatory Committee on August 11 2007, and effective as of the date of issue, may give banking lawyers more questions than answers.
The guidelines clarify the role of lead banks, participating lenders, fee structures and the type of projects eligible for loan syndication. According to the guidelines, the lead bank should be responsible for at least 20% of the total loan syndication, while participating banks should altogether share at least 50% of the total loan. If a credit facility is arranged by a sole arranger, the arranger must hold between 20% and 50% of the debt after syndication.
While the rules bring clarity in the above respects, they also cause confusion by putting an unusual amount of responsibility on the arranger, such as the provision requiring the arranger to ensure the ¡°truthfulness, completeness, and accuracy¡± of all information included in the information memorandum – which is the opposite of normal international banking standards, in which the borrower is typically given such responsibilities.
Brett King, a banking and finance partner at Paul, Hastings, Janofsky & Walker, says that the majority of the provisions reflect standard banking practices, and may even be considered unnecessary. Yet King worries that some aspects of the rules may not be reconcilable with current practice, despite a common desire to follow the law. ¡°If they were enforced as written, western banks wouldn't be [participating],¡± he says.
Other provisions include a duty on the arranger to monitor the ongoing credit conditions of the borrower, and a requirement for 60 days prior notice, said to be the longest in the history of lending, for the voluntary prepayment of loans. While many might wonder as to the reasons behind the guidelines, King has a relatively simple explanation: ¡°The regulations are clearly written by someone who didn't know what they were doing¡±.
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