Commercial banks have been advised by debt managers to share financing risks for big ticked transactions to minimize risks associated with projects.
Head, Debt Solutions at FBNQuest Merchant Bank Limited, Tonna Ejiofor, said although some Nigerian banks have the expertise and the balance sheet to solely write tickets of between $150 to $250 million, it is prudent to share the financing risk.
He said a well-structured syndication helps manage the financing risk associated with projects. “When evaluating your participation ticket, Nigerian banks should develop a methodology. Of course, yield and voting rights should be somewhere in the mix but definitely not “ego”. There should be more strategic reasons for writing the largest ticket,” he said in a report.
He also advised lenders to always read facility agreement insisting that one of the core principles of a syndicated facility is that all the participating banks have to sign up to a single agreement.
“Unlike a bilateral term sheet or loan agreement, the syndicated facility agreement is drafted – typically by the lenders’ legal counsel – from the prism of a group of lenders working together to advance a loan to a borrower. Under the circumstances, there is a tendency to assume the lead bank will read it with a “fine tooth comb” and herd everyone else in the right direction. This has been a dangerous assumption, particularly for lenders with smaller tickets. As with all contracts, it is expected that all parties take time to read the Facility Agreement and get comfortable with all clauses,” he said.
According to Ejiofor, during the restructuring and refinancing exercises undertaken post the syndication wave of 2013 – 2015, it was common for lenders to ask the Facility Agent’s view on controversial matters or general discussion points. “In most cases, the Facility Agent declined to comment. Lenders interpreted this silence in different ways. It is worth clarifying that the Facility Agent in a syndicated loan serves as a link between the borrower and the lenders and owes a contractual obligation to both the borrower and the lenders. The role of the Facility Agent to the lenders is to provide them with information that allows them to exercise their rights under the syndicated loan agreement,” he said.
He also said the banks should always keep the transaction times, adding that the arranger would typically communicate a transaction timetable as part of the syndication package. He said that as the infrastructure deficit expands, and whenever the dust of COVID 19 settles, it is clear syndicated facilities will be critical in funding the infrastructure and expansion projects required to battle an imminent recession.
