It is a precise presentation to facilitate the finance students in specific & others in general to comprehend the very vital concept of,"Working with Lenders"

2. WORKING WITH LENDERS
Opening Doors to Financial Future
2

3. GROUP ACQUAINTANCE 3
 20168 Tariq Malik
 20110 Fawad Sardar
 20119 Adeeb Jawaid
 20138 Shahzaib Tanveer
 20140 Fahad Amjad

4. AIM 4
 To acquaint all concerned with the Concept &
Salient of Working with Lenders with particular
emphasis on its affiliated Implications in the
Application Scenario

5. SEQUENCE
5 Glossary/ Terms Familiarization
 Bird’s Eyeview
 Commercial Banks
 Advisers & Lead Managers
 Letters of Intent
 Lenders & The Public Procurement Process
 Bank Roles
 Financial Model
 Term Sheet, Underwriting & Documentation
 Information Memorandum & Syndication
 Agency Operation
 Bond Issues
 The Investment Bank & The Rating Agencies
 Rule 144A
 Wrapped Bonds
 Bond Paying Agents & Trustees
 Loans Versus Bonds
 The Role of The Lender’s Advisers
 Legal Advisers & Lender’s Engineer
 Insurance Advisor, Model Auditors & Other Advisers
 Pre-appointment of Lender’s Advisers
 Use of Adviser’s Time
 Summing Up including Conclusions
 Question & Answer Session 20168 Tariq Malik
A Journey of Thousand Miles
Begins with A Single Step
20168 Tariq Malik
20168 Tariq Malik
Complete Panel
20140 Fahad Amjad
20138 Shahzaib Tanveer
20119 Adeeb Jawaid
20110 Fawad Sardar

6. 6

7. THE ICEBERG
HOW MUCH DO YOU SEE
OF AN ICEBERG?
7

8. THE ICEBERG
8
ONLY 10%
OF ANY
ICEBERG IS
VISIBLE.
THE
REMAINING
90% IS
BELOW SEA
LEVEL.

9. THE ICEBERG
9
SEA LEVEL
10 %
90 %
VISIBLE
ABOVE SEA LEVEL
INVISIBLE
BELOW SEA LEVEL

10. THE ICEBERG
10
SEA LEVEL
KNOWLEDGE
&
SKILLS
ATTITUDE
UNKNOWN
TO OTHERS
KNOWN
TO OTHERS

11. THE ICEBERG
11
SEA LEVEL
BEHAVIOR
VALUES – STANDARDS – JUDGMENTS
ATTITUDE
MOTIVES – ETHICS - BELIEFS
KNOWN
TO OTHERS
UNKNOWN
TO OTHERS

12. WHAT MAKES YOUR LIFE 100% ?
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
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A T T I T U D E
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4 5
K N OW L E D G E
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H A R D WO R K
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S K I L L S
1
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=
=
=
=
82
96
98
100
Let each letter of the alphabetic has a value
equals to it sequence of the alphabetical order:

13. GLOSSARY/ TERMS FAMILIARIZATION
13
 Agent Bank. The bank liaising between the Project Company & its Lenders
 Bond. A tradable debt instrument (Lender)
 Commercial Banks. Private sector banks, the main providers of debt to the
project finance markets (Lender)
 Cross Border. Debt or investment made from one country to another
 EIA. Environmental Impact Assessment, a study of the effect of the
construction & operation of the projects on the natural & human
environment
 EPC Contract. Engineering, Procurement & Construction Contract, a fixed
price, date-certain, turnkey contract under which the project is designed &
engineered, equipment procured or manufactured & the project constructed
& erected
 EPC Contractor. The contractor under the EPC contract
20168 Tariq Malik

14. GLOSSARY/ TERMS FAMILIARIZATION
14
 FIM. Financial Information Memorandum, the information
memorandum on the Project Company used for syndication
 Financial Advisor. The sponsor’s adviser on arranging finance for the
Project Company
 Financial Model. The financial model used by lenders to review &
monitor the project
 Force Majeure. A natural or political event that affects the ability of one
party to fulfill its contract, but that is not the fault of, & could not reasonably
have been foreseen by that party
 Independent/ Lender’s Engineer/ Technical Adviser. An engineering
firm advising the lenders
 Investment Bank. A bank arranging but not providing debt
 Investment Grade Rating. A rating of BBB/ Baa3 or above
20168 Tariq Malik

15. GLOSSARY/ TERMS FAMILIARIZATION
15 Lead Manager. Bank arranging & underwriting the debt
 Lenders. Banks or bond investors
 Lender’s Advisers. External advisers employed by the lenders
 LOI. Letter of Intent, heads of terms for a Project Agreement or other
project contract
 Monoline Insurance. Insurance of an individual financial risk (rather
than general casualty insurance)
 Negative Arbitrage. The loss of interest caused by having to draw the
whole of a bond financing & then redeposit the funds until required
 Offtake Contract. A Project Agreement under which the Project
Company produces a product & sells it to the Offtaker
 Offtaker. The purchaser of the product under an offtake contract
 Owner’s Engineer. The engineer supervising the EPC Contractor on behalf
of the Project Company (Consultant role) 20168 Tariq Malik

16. GLOSSARY/ TERMS FAMILIARIZATION
16 Paying Agent. A company distributing debt service payments from the
Project Company to bond investors
 PIM. Preliminary Information Memorandum, the information
memorandum on the project used as a basis for obtaining financing bids
from prospective Lead Managers
 Private Placement. Bonds not quoted on a stock exchange
 QIB. Qualified Institutional Buyer, an institutional investor to whom
Rule 144a bonds can be sold
 Rating Agency. A company providing an independent view on the
credit worthiness of the Project Company (3rd Party Validation)
 Rule 144a. Securities & Exchange Commission (SEC) provisions that
allow trading in bond private placements with QIBs
 SEC. Securities & Exchange Commission, which regulates the
investment market 20168 Tariq Malik

17. GLOSSARY/ TERMS FAMILIARIZATION
17
 Syndication. The process by which the Lead Managers reduce their
underwriting by placing part of the loan with other banks
 Term Sheet. Heads of terms for the project finance
 Wrapped Bonds. Bonds guaranteed by a monoline insurance company
20168 Tariq Malik

18. BIRD’s EYEVIEW
(Thought Provoking) 18
 Basic fundamental question for the lender (basing on Financial Statement/
Ratio Analysis) will be
If there is no additional equity being
invested in the business but the assets
have grown, how is that growth being
funded?
20168 Tariq Malik

19. BIRD’s EYEVIEW
(Thought Provoking) 19
 Basic fundamental question for the lender (basing on Financial Statement/
Ratio Analysis) will be
If there is no additional equity being
invested in the business but the assets
have grown, how is that growth being
funded?
Remember the accounting equation
Assets = Equity plus Liabilities
20168 Tariq Malik

20. BIRD’s EYEVIEW
(Thought Provoking) 20
 If there is no funding from equity, there can only be one answer to that
question
It can only be from increased liabilities
(Debt)
20168 Tariq Malik

21. BIRD’s EYEVIEW
(Thought Provoking) 21
 If there is no funding from equity, there can only be one answer to that
question
It can only be from increased liabilities
(Debt)
In this context, liabilities will be either
trade creditors (accounts payable) or bank
overdraft
20168 Tariq Malik

22. BIRD’s EYEVIEW
(Thought Provoking) 22
 If there is no funding from equity, there can only be one answer to that
question
Either way, these liabilities introduce more
risk into the business since they are very
short term ………
20168 Tariq Malik

23. BIRD’s EYEVIEW
(Thought Provoking) 23
 If there is no funding from equity, there can only be one answer to that
question
……… that’s why lenders have to be
concerned about the extent to which the
current assets are allowed to grow (Growth
Strategy)
20168 Tariq Malik

24. COMMERCIAL BANKs
24
 Commercial Banks specialist department dealing with project finance field
(Approaches):-
 Project Finance Department
 Purely specialized in project finance transactions
 Concentrating all the project finance expertise in one department
 It may not offer Clients the best range of service ?
 Structured Finance Department
 Divisions between project finance & other types of structured
finance are becoming increasingly blurred
 Project finance often forms part of a large structured financial
operation
 Offer more sophisticated range of products
 Danger – Project finance vs Shorter time horizon (High Risk Factor)
20168 Tariq Malik

25. COMMERCIAL BANKs
25
 Commercial Banks specialist department dealing with project finance field
(Approaches):-
 Industry Based Departments
 Combine all financing for a particular industry sector in one
department
 Project finance experts form part of the team
 Provision of one stop service (One Window Operation Strategy) to
the bank’s clients in that particular industry
 Diminish cross fertilization
 Salient
 Good communication & cooperation within bank is more important
 Relevant experience of departmental project finance personnel
 Banks also rely extensively on specialized external advisers
 Minimum project size to qualify for bank preference - $ 100 Mn or >
20168 Tariq Malik

26. FINANCIAL ADVISERs & LEAD MANAGERs
(Financial Roles in The Project Development Process) 26
 Financial Adviser
 Sponsors without in house project finance expertise need financial
advice to remain on right track (Need Establishment)
 Financial advisory services can be provided to sponsor by major banks
 More wide ranging role of finance adviser in project finance augmented
with paramount element of experience
 Terms of the Financial Adviser’s engagement are set out in an Advisory
Agreement
 Payment modalities of financial advisers – Quite expensive (Costing
around 0.5 – 1 % of the debt amount)
20168 Tariq Malik

27. FINANCIAL ADVISERs & LEAD MANAGERs
(Financial Roles in The Project Development Process) 27
 Financial Adviser (Justification for claiming 0.5 – 1 % of the debt amount)
 Financial Adviser’s scope of work/ charter of duties include:-
 Advise on optimum financial structure
 Assist in preparation of financial plan
 Advise on sources of debts
 Advise on likely financial terms
 Assist in preparing a financial model
 Advise on the financial implications
 Assist in negotiations
 Preparing information memorandum for presenting project to
financial market
 Advise on assessing proposals for financing
 Advise on selection of commercial bank lenders/ placement of bond
 Assist in negotiation of financing documentation 20168 Tariq Malik

28. FINANCIAL ADVISERs & LEAD MANAGERs
(Financial Roles in The Project Development Process) 28
 Lead Manager
 A financial organization that is responsible for managing the sale of new
bonds or shares in a company or loans that several banks have joined
together in making
 The commercial or investment bank which has primary responsibility for
organizing a given credit or bond issuance. This bank will find
other lending organization or underwriters to create the syndicate,
negotiate terms with the issuer, and assess market conditions
 Experience of lending, type of project and in the country concerned are
key factors in selecting a Lead Manager
 To ensure the maximum competition between banks on the financing
terms, the whole of the project package should be finalized (including all
the Project Contracts) and a number of banks then invited to bid in a
competition to underwrite and provide the loan as Lead Managers20110 Fawad Sardar

29. LETTER OF INTENT
29
 A document outlining the understanding between two or more parties which
they intend to formalize in a legally binding agreement
 Banks commonly provide letters of intent (or letters of interest) to Sponsors early
in the development of a project. These are usually short-1-2 pages long- and
confirm the banks' basic interest in getting involved in the project
20110 Fawad Sardar

30. LENDERs & PUBLIC PROCUREMENT PROCESS
30
 Financial advisors and lead managers are normally involved in this process. When
the bid is submitted, bidders may have to provide proof that financing can be
arranged. This may be no more than letter of intent from banks expressing their
willingness to provide finance to the bidders for the project but which do not
commit the bank to do so.
BANK ROLES
 Larger loans may require more than one bank to underwrite the financing.
When several banks are involved as lead managers, they normally divide
up responsibilities for various aspects of the transactions, which enables
them to use their resources more effectively
20110 Fawad Sardar

31. FINANCIAL MODEL
31
 Financial modelling is the task of building an abstract representation
( a model )of a real world financial situation. This is a mathematical
model designed to represent the performance of a financial asset or
portfolio of a business, project or any other investmentl should ideally be a
joint
 operation between the sponsor and the financial advisor or lead
 The development of the financial model should ideally be a joint
operation between the sponsor and the financial advisor or lead
manager probably with each assigning one or two people to work
in a joint team
20110 Fawad Sardar

32. TERM SHEET, UNDERWRITING &
DOCUMENTATION 32
 Term Sheet
 A term sheet is a written document the parties exchange containing the
important term and condition of the deal
 The document summarizes the main point of the deal agreements and sorts
out the differences before actually executing the legal agreements and
starting off with the legal agreements and starting off with the time-
consuming due diligence
 Binding Term Sheet
 It is itself contract it is a binding document and parties have agreed to the terms
and condition specified therein
 Non binding term sheet
 It specifies that is not binding and the parties agree to enter into a definitive
agreement after negotiating the terms 20119 Adeeb Jawaid

33. INFORMATION MEMORANDUM & SYNDICATION
33
 An information memorandum is a document aimed at prospective investor/
buyers
 The prime aim of an information memorandum is to encourage prospective
investors to invest in your business
 Apart from helping you to draw interest in your business, an information
memorandum also help establish transparency
20119 Adeeb Jawaid

34. INFORMATION MEMORANDUM
 What to include in an information memorandum?
 Executive summary
 Company
 Business
 Operation
 Resources
 Financials
 Outlook
34

35. AGENCY OPERATIONS 35
 Once the financing documentation has been signed, one of the lead managers
act as agent for the bank syndicate as a whole
 This agent bank act as a channel between the project company and the bank,
as otherwise the project company could find it is spending an excessive
amount of time communicating with individual banks
20119 Adeeb Jawaid

36. THE INVESTMENT BANK & THE RATING AGENCIES
36
 Acts as financial advisor/ 3rd party, appointed as lead manager
 Makes presentation for credit rating agency
 Rating agency assigns credit ratings based on risks review of projects and prepare
documentation
20138 Shahzaib Tanveer

37. RULE 144 A
37
 Introduced by Securities Exchange Commission(SEC) in 1990
 Private placement of bonds and to get rid of lengthy registration procedures of
SEC
 First SEC said privately placed bonds cannot be sold to another party for two
years but US bond investors did not accept it
 For this purpose a method is introduced Qualified Institutional Buyers(QIB). Rule
144a allows secondary trading (i.e., reselling) to “Qualified Institutional Buyers".
Only some listed buyers like insurance company, employee benefit plan
20138 Shahzaib Tanveer

38. WRAPPED BONDS
38
 Insured by third party
 Commonly an insurance company, which provides a guarantee to the investors
that if the underlying issuer fails to pay principal or interest then the insurer or
wrapper will make such payments
20138 Shahzaib Tanveer

39. BOND PAYING AGENTS & TRUSTEES
39
 Paying agents and trustees are appointed for the bond issue (except in a private
placement to a single bond investor), with similar roles to that of an agent bank
for a loan
 The paying agent pays over the proceeds of the bond to the borrower and
collects payments due to the bond investors
 The bond trustee calls meetings of bond holders to vote on waivers or
amendments of the bond terms
20138 Shahzaib Tanveer

40. SECURITIES & EXCHANGE COMMISSION OF
PAKISTAN (SECP) 40
 Just like SEC US, there is SECP in Pakistan
 SECP act was passed in parliament in December,1997 but became operational on
1st January, 1999
 The main responsibilities of SECP are:-
 Registering the companies, agents or investors
 Regulating the issues of securities
 Regulating the business in stock exchange and any other security markets
 Supervision and monitoring the activities in central stock exchange
depository
20138 Shahzaib Tanveer

41. LOANS VERSUS BONDS
41
20138 Shahzaib Tanveer

42. ROLES OF THE LENDER’s ADVISERS
42
 Lenders Advisers
 Lenders use their own external advisers
 The Costs of all these advisors are payable by the sponsors
 They are payable whether or not the financing is concluded
20140 Fahad Amjad

43. TYPES OF LENDER’s ADVISERS
43
 Legal Advisors
 The lenders' legal advisers carry out due diligence on the project contracts,
and in due course they assist the banks in negotiating the financing
documentation
 Model Auditor
 Model Auditor(usually one of the major firms of accountants) is appointed to
review the model
 Tax and accounting assumptions
 Confirm that it properly reflects the Project Contracts and financing
documentation and can calculate the effect of various sensitivity scenarios
20140 Fahad Amjad

44. TYPES OF LENDER’s ADVISERS
44
 Lender’s Engineer
They are also known as the Independent Engineer, or Technical Adviser ("TA"),
their work is in two stages:-
20140 Fahad Amjad

45. PRACTICAL EXAMPLE
45
 Mott MacDonald
 Mott MacDonald is a leading lenders' technical advisor last year alone,
they have advised on over 236 projects in 39 countries around the world
 Mott MacDonald has been driving development in Pakistan for over 50
years
 Initially, they were involved in delivering land and water resources
projects
 Today they cover a broad range of projects from many sectors
 Projects in Pakistan
 Ghazi Barotha Hydropower project which won the Energy Institute
International Platinum Award
 Sukkur Barrage project which brought us the British Construction Industry
Award
20140 Fahad Amjad

46. WHY TO GO FOR ADVISORS?
46
 Real world experience
 Market Awareness
 Effective Communication
 Commercial and Technical Perspective
20140 Fahad Amjad

47. SUMMING UP/ CONCLUSIONs
47 Differences – Bond vs Loan
 Basic Definition
 Interest Rates
 Source Place
 Ownership
 Type of Interest Rate
 Trading
 Examples
 The Roles of The Lender’s Advisers
 Traditional Lenders Smaller Deals – Before looking for funding, understand what
traditional lenders look for in a borrower:-
 Money for down payment – 20 ~ 25 %
 Steady income statement
 Good credit
 Liquidity & solvency (Ability to raise cash vs Ability to clear liabilities)
 May include some of the rental income 20168 Tariq Malik

48. SUMMING UP/ CONCLUSIONs
48
 The Roles of The Lender’s Advisers
 Traditional Lenders Larger Deals – On larger deals/ properties the lender
is going to look beyond your personal ability to service the loan:-
 Money for down payment – 20 ~ 25 % (Same % on huge quantum)
 Multi company experience – Yourself or partner (In case of JV)
 Net worth/ asset equal to the loan amount (Financial Ratio Analysis)
 Liquidity to cover several months of expenses & loan payments
 The property income must be able to cover the debt
 Meeting The Requirements - It may be difficult to meet the lender
requirements when just getting started. To pass that hurdle:-
 Partner with someone experienced
 Leverage other people’s net worth
 Give them a share of the deal
20168 Tariq Malik

49. YOU CAN BRING A HORSE TO
WATER BUT CAN’T MAKE HIM
DRINK
49
QUESTION &
ANSWER
SESSION
Complete Panel

50. Thank You for Patience Hearing
50