consortium financing

8/7/2019 CONSORTIUM FINANCING

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Consortium is a Latin word, meaning

'partnership, association or society.

A consortium is an association of two ormore individuals, companies,

organizations orgovernments (or anycombination of these entities) with the

objective of participating in a common

activity or pooling their resources for

achieving a common goal.

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Under consortium financing, several

banks (or financial institutions) finance a

single borrower with common appraisal,common documentation, joint

supervision and follow-up exercises,

these banks have a common

agreement between them, the processis somewhat similar to loan syndication.

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The borrowers, particularly the big ones, are nowadays a veryhappy lot as the bankers run after them offering cheapfinance. This has given birth to the practice of MULTIPLEBANKINGa situation when one borrower is banking withmany banks.

Under consortium financing, several banks (or financialinstitutions) finance a single borrower with common appraisal,common documentation, jointsupervision and follow-upexercises, but in multiple banking, different banks provide

finance and different banking facilities to a single borrowerwithout having a common arrangement and understandingbetween the lenders. The practice of multiple banking hasincreased tremendously during the last years . This is due tothe increasing competition and the bankers desire to grow ina short span of time.

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The Consortium approach to project

delivery is chosen because of the desire

to share as evenly as possible the riskinherent in that project.

It is like a establishing a temporarybusiness without the formal structure or

tax liabilities, a business that is governed

by the rules laid down in a consortium

agreement.

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The accessibility to international journals in Indianuniversities and technical institutions has improvedmany fold with setting-up of a few Government-

funded library consortia.

Prior to setting up of these consortia, the access toe-journals was restricted to a premier institutions likeIISc, IITs, IIMs and a few central universities who

were subscribing to a few bibliographic databaseson CD ROM, a few e-journals accessible free with

subscription to their print versions and a negligiblefraction of journals on subscription.

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After launch of the Indian National Digital Library inEngineering Sciences and Technology (INDEST)Consortium in 2003 and UGC-INFONET Digital Library

Consortium in 2004, availability and accessibility of e-resources increased phenomenally in setting in a new

culture of electronic access and browsing ineducational institutions.

A number of library consortia have emerged in India inpast five to six years.

Some of the important consortia and their activities willbe discussed now:

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INDEST-AICTE Consortium was set-up by the Ministryof Human Resource Development (MHRD) in year2003 to provide access to selected electronic

journals and databases to 38 centrally-fundedtechnical institutions including IISc, IITs, NITs, IIMs,

IIITs, ISM, SLIT, etc.

Currently, the Ministry provides funds required for

subscription to resources for 42 centrally-fundedinstitutions including IISERs, new NITs and IITs.

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Besides, 60 Government or Government-aidedengineering colleges and technical institutionshave joined the Consortium with financial support

from the AICTE.

Moreover, the Consortium also welcomes otherinstitutions to join it under its self-supportedcategory.

690 engineering colleges and other educationalinstitutions have joined the Consortium under its

self-supported category. The total number ofmembers in the Consortium has now gone up to788.

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Ease of Formation- No formal procedure mustbe followed. Also no capital is required tocreate the consortium.

Flexibility- Members of consortium can changetheir contractual agreement at any time to suitchanged circumstances.

Ease of termination- Consortia can be set toexpire on a given date or on the occurrence ofcertain events without the formal requirementsneeded in the case of dissolution of thecorporation.

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Tax transparency- The consortium is notdirectly subject to taxation however theindividuals are.

Confidentiality- Some of the members maychoose to be undisclosed parties indealings with third parties.

Costs- The cost of running a contractualjoint venture is generally lower than runninga joint venture company.

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Liability- It is difficult for a consortium memberto restrict or limit its liability. Members may evenbecome liable to third parties for the non

performance of other members of theconsortium or debts of such members incurred

in undertaking the common project.

External Relationships and Funding- Third

parties often find it difficult to enter into acontract with a non legal entity like consortium.Because it is non legal entity the funding is alsonormally available to the individual membersand not the consortium itself.

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Lack of permanent structure- The lack of

permanent structure makes it difficult for

a consortium to establish a long termbusiness relationship with third parties.

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Rendezvous sports ltd wins Kochis IPL team. Theowner of the Kochi IPL team is Vivek Venugopal,abusiness man based in and out of kerala. ShailendraGaekwad is also believed to be one of the owners.Vivek Venugopal along with other 5 companies hasformed a group called kerala consortium and haswon the bid for 1533 Crore rupees.

CompaniesintheConsortium are:- Anchor Earth

- Parani Development Pvt Ltd- Anand Shah developers Film Waves(proper list to follow soon)Shashi Tharoor has played a major role in Keralagetting an IPL team.

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Airbus Industrie was formed in 1970 as a consortium ofaerospace manufacturers. The retention of production andengineering assets by the partner companies in effect madeAirbus Industrie a sales and marketing company. Thisarrangement led to inefficiencies due to the inherent

conflicts of interest that the four partner companies faced;they were both shareholders of, and subcontractors to, theconsortium. The companies collaborated on development ofthe Airbus range, but guarded the financial details of theirown production activities and sought to maximise the transferprices of their sub-assemblies.

In 2001 EADS (created by the merger of French, German andSpanish Airbus partner companies) and BAE Systems (theBritish partner company) transferred their Airbus productionassets to a new company, Airbus SAS. In return they got 80%and 20% shares respectively. BAE would later sell its share to

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An example of a for-profit consortium is a

group of banks that collaborate to make

a loanalso known as a syndicate. Thistype of loan is more commonly known as

a syndicated loan. In England it is

common for a consortium to buy out

financially struggling football clubs inorder to keep them out of liquidation.

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SBI-led consortium approves Rs1230cr debt financing: JaiBalaji. (ECONOMIC TIMES)

KOLKATA: Jai Balaji Industries today said that a State Bank of India-

led consortium has approved Rs 1,230 crore debt financing for itsgreenfield five million tonnes steel project and a power plant atPurulia,West Bengal.

"Jai Balaji has achieved financial closure for Rs 1,870 crore phase 1Aof the five million tonne steel plant and 1215 MW power plant at

Ragunathpur, Purulia," a Jai Balaji statement said here today.The company said it would arrange Rs 640 crore as equity and

internal accruals toward the project and the rest by SBI-ledconsortium .

The project will be completed in a period of 30 months, thecompany said.

The statement said the project of 35,000 tonnes coke oven plant atDurgapur plant is expected to be completed in November 2011.

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L&T Consortiumbags Indias first MonorailSystem from Mumbai Metropolitan.(Courtesy:

Topnews.in)

Larsen & Toubro, Indias leading Technology,

Engineering & Construction Company along with itsMalaysian partner Scomi Engineering Bhd hassecured an order worth Rs 2460 crore from theMumbai Metropolitan Region Development

Authority (MMRDA) to implement the countrys first

Monorail System in Mumbai.

The consortium bagged the said contract bybeating Reliance-Hitachi Consortiums bid.

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HCL Infosystems led consortiumbags India's largest

PDSorder.(Courtesy: The Financial Express) HCL Infosystems Indias premier hardware, services and ICT

systems integration and distribution company todayannounced the awarding of the contract from theGovernment of Madhya Pradesh for the implementing of

Indias largest food-coupon based Targeted PublicDistribution Systems (TPDS) in the state. HCL Infosystems ledconsortium bagged this order which would involve setting upan efficient model of food & civil supplies distribution in thestate based on the UIDAI guidelines, for over 10millionexpected transactions per month at Rs. 10.98 (per transaction

per family) spread over 78 months. While the BPL & AAYfamilies (10 million approx.) would get access to the schemefor free, the APL families (8milliion approx.) will be paying aone-time subsidised registration fee of Rs. 250 only.

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GSPC-led consortiumstrikesgasinCambay.(Courtesy:

TOI). AHMEDABAD: State-owned Gujarat State Petroleum

Corporation (GSPC)-led consortium has made a huge naturalgas discovery in the Cambay basin. Industry estimatessuggest the total resource base in the basin may be in theregion of 20-30 trillion cubic feet (tcf), almost equivalent to

that of Reliance Industries' fields in KG-D6. However,recoverable reserves may be much lower as the reservoir istight with low permeability.

GSPC holds 55% interest in the Cambay field, while Australia's

Oilex Ltd holds 45%. Oilex Ltd on Monday said the natural gasdiscovery in Gujarat may hold over 1.5 tcf of recoverablereserves. The field was awarded to GSPC and Canada's NikoResources in the pre-new exploration licensing policy ( NELP)rounds in the 1990s and Oilex stepped in after Nikos exit.

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