Consortium Financing

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shankar shankar

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Mar 17, 2011, 1:41:04 AM3/17/11
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dear friends,
When I searched for the meaning of “Consortium Financing”, it reads as follows: “Consortium Financing” means joint financing by a group of FIs/ Banks where the major financing agency acts as a leader. The charge on assets is created on pro-rata basis.

Could anyone of you explain how charge on assets can be created on pro-rata basis?

 

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Ramaswami Mohan

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Mar 17, 2011, 1:51:36 AM3/17/11
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by means of a pari-passu charge on the floating assets and by means of second charge on the fixed assets, even on fixed assets there can be a parri passu charge and there will be a clause in the loan documents to the effect that in the event of charge crystallisation the amount realised against the charged assets will be shared by the charge holders on pro-rata basis.
 
Views from other members welcome.
 
rgeards,
 
Mohan

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shankar shankar

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Mar 17, 2011, 2:07:14 AM3/17/11
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Sir, then is it correct to say that the banks in consortium decide among themselves whether the charge should be pari pasu or ranked between them?

Ramaswami Mohan

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Mar 17, 2011, 2:56:07 AM3/17/11
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yes and the company should also execute a document to the effect , popularly called the pari-pasu agreement.
 
in the absence of a pari-pasu agreement then it will not be on pro-rata basis, and will go according to the seniority of the person who has secured the loan first.
 
views of other members welcome.
 
regards,
Mohan

shankar shankar

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Mar 17, 2011, 3:00:28 AM3/17/11
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Thank You Sir.

deepak gupta

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Mar 17, 2011, 4:15:28 AM3/17/11
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I Just want to add the meaning of Pro rata basis
 
(Consortium financing)
For Example:
If SBI funds Rs 100 Cr
  PNB funds Rs 50 Cr
  Axis funds Rs 50 Cr
 
Security fetch Rs 100 Cr
 
than SBI will get Rs 50 Cr
       PNB will get Rs 25 Cr
       Axis will get Rs 25 Cr
 
Pro rata means in proportion of their investments(funding), not on any priority basis to any lender.
 


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Regards,

 

Deepak Gupta
ACA, ACS, B.Com(H)

 

 

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