BAKU, Azerbaijan, Dec. 25
By Nargiz Sadikhova - Trend:
Development Bank of Kazakhstan JSC (DBK) has developed and proposed an initiative to legislatively consolidate syndicated financing in 2020, Deputy Chairman of the Board of DBK Asset Sharipov said, Trend reports citing DBK.
In his words, in 2015, DBK approved the Concept of Syndicated Financing of Investment Projects and the Action Plan for the implementation of this new loan product in the Bank.
“The goal was quite simple - to stimulate lending to non-resource sectors of the economy of the Republic of Kazakhstan through joint lending to projects with commercial banks, international development institutions to share or reduce risks in financing projects,” he said.
Five years ago, DBK helped make changes to the Law of Kazakhstan "On the Development Bank of Kazakhstan", introduced new and changed the existing internal documents, entered the International Association of Professional Participants of the Syndicated Loan Market (Loan Market Association), and joined the Debtdomain service for the safe and convenient exchange of confidential documents related to syndicated transactions.
“We also signed memorandums of understanding and cooperation with 28 banks, including second-tier banks, development banks, subsidiaries of large foreign banks. However, since then not a single syndicated loan has been sold. The main reasons are the existing risks of this product due to the lack of clear regulation in the legal acts of the Republic of Kazakhstan,” he said.
Therefore, DBK initiated these changes, and now the draft Law is amending the Civil Code, the Laws "On Banks and Banking Activities in the Republic of Kazakhstan", "On Development Bank of Kazakhstan", "On Project Financing and Securitization", "On Rehabilitation and Bankruptcy". Also, amendments have been made to the Economy of Simple Things mechanism, including the possibility of subsidizing rates on joint syndicated loans of STBs and DBKs up to 6 percent in those industries that most need support and are aimed at import substitution, export orientation, and infrastructure development. However, without the adoption of the bill, this mechanism loses its relevance.
Talking innovations that are spelled out in this draft Law, Sharipov noted that in the case of syndicated financing, the creditors-pledgees have a joint and several claims against the borrower, and the pledger secures the return of the money with a pledge of property established in favor of all creditors - participants of the syndicate of banks, both in general and concerning each of the participants. Therefore, it became necessary to provide for the legal category of creditors who also act as shared pledges, for example, when it comes to the indivisible subject of a pledge.
Another innovation is the rule that in case of syndicated financing on behalf of and the interests of all creditors, there is one agent bank or collateral manager, which is determined from among the creditors or third parties. The responsibilities of the agent bank include such procedures as maintaining a register of creditors, accounting for loans provided by each lender, accounting and distribution of payments received from the borrower among the syndicate participants, forming and maintaining a credit dossier, communication, and negotiations with the borrower. The agent bank concludes a pledge agreement with the pledger and exercises all rights and obligations of the pledgees under the pledge agreement.
“All these procedures are relevant and practical for all members of the syndicate. For the borrower, it is convenient in terms of negotiating with only one authorized person instead of several lenders. The financial institution receives income and controls the entire lending process, without burdening business processes and not attracting unnecessary labor resources,” Sharipov explained.
He added that if the borrower does not fulfill the obligations under the agreement, the creditors have the right to recover the pledged property out of court or in court, while the money from the sale of the pledged property will be distributed among the creditors in proportion to the size of their claims.
“In case of a judicial order of collection, the authorized person submits a claim, participates in the judicial process, and acts on behalf of and represents the interests of all creditors. In the out-of-court procedure, the authorized person carries out the procedure for the sale of the pledged property, notifies the borrower about the delay and the consequences of default on obligations, coordinates between the borrower and creditors about a possible change in the terms of the contract. Also, the agent bank has the right to apply to the court to declare the debtor bankrupt or apply a rehabilitation procedure,” Sharipov said.
Sharipov added that DBK has already formed a pipeline of several projects that are potentially being considered for syndicated financing. The total amount of loans for these projects is 397.7 billion tenge ($946.9 million). These are projects in oil and gas processing, metallurgy, food industry, and gas pipeline transportation.
Syndicated financing is a set of procedures in which lending to projects occurs with the participation of several lenders based on one loan agreement.
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