Consortium Financing

[shankar shankar]

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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CS K.Sankara Subramanian,

            B.A.B.L., ACS
Cethar Energy Limited, Trichy.

[Ramaswami Mohan]

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]

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]

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]

Thank You Sir.

[deepak gupta]

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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