Earlier, on June 6, 2016, Tencent increased another syndicated loan to $4.4 billion. The loan to finance business acquisitions was signed by five major institutions: Citigroup Inc., Australia and New Zealand Banking Group, Bank of China, HSBC Holdings PLC and Mizuho Financial Group Inc. The five organizations together created a syndicated loan with a five-year facility, split between a long-term loan and a revolver. A revolver is a revolving line of credit, which means that the borrower can repay the balance and borrow again. Syndicated loans are generated when a project requires a loan that is too large for an individual lender or when a project requires a specialized lender with expertise in a given asset class. Loan syndication allows lenders to spread the risks and participate in financial opportunities that may be too important for their individual capital base. Interest rates on such loans can be set or variable on the basis of a benchmark rate such as the London Interbank Offer Rate (LIBOR). LIBOR is an average of the interest rates that the world`s major banks lend to each other. Because these are such large amounts of money, syndicated loans are distributed among several financial institutions, reducing the borrower`s risk of default. Before a loan is made and the loan document is signed, the title “Bookrunner” is awarded to the bank that agrees to provide the loan. This can be shared by several investors depending on the size of the agreement.
The “arranger” is the company (or entities) that then agreed and negotiated the financing structure of the project. They will not necessarily be the same unit, although they often are. In the investment bank, an arranger is a provider of funds in syndication of a debt. They are entitled to syndicate credit or bond issuance and can be called “Lead Underwriter.” This is because the company runs the risk of being able to sell the underlying securities/liabilities or the cost of its accounting until the date they can be sold. They don`t necessarily acquire all the debts – these can be divided into different parts and sold to a variety of arrangers. Syndicated loans are generally too large for a single lender. For example, on March 24, 2017, Tencent Holdings Ltd,101, Asia`s largest internet company and owner of popular messaging services WeChat and QQ, signed a syndicated credit agreement to raise $4.65 billion. The credit agreement included commitments from a dozen banks, with Citigroup Inc. acting as coordinator, Lead Arranger and Book Runner, which is the leader in a new debt offering that manages the “books.” In the case of syndicated loans, there is usually a lead bank or underwriter, known as arranger, agent, or lead lender.