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Deal of the Month

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Nilesh Chandra is an Associate Partner with HSA Advocates and his focus areas of practice are Project Finance & Infrastructure. He has represented major national and private banks and NBFCs for financing of various projects in the field of energy, infrastructure and real estate. He has been a trusted counsel to leading industry bodies and infrastructure companies on matters relating to project development. HSA Advocates managing partner Mr. Hemant Sahai exercised oversight over the assignment. Here Nilesh talks to Finance Monthly about the State Bank of India’s INR 1200 million financing for the modernisation and expansion of a project in Punjab

State Bank of India’s INR 1200 million financing

HSA Advocates (“HSA”) advised State Bank of India (“SBI”). What was your role in the deal?

HSA was the lead lender’s (State Bank of India) legal counsel (LLC). While this was a project finance transaction, it was heavily structured and involved complex legal and regulatory issues since the end use for the financing was designed for expansion of the digital cable TV service network of the borrower in North India.

Our scope of work broadly included drafting, negotiation and finalization of the financing and security documents. The detailed scope included conducting a detailed and expansive due diligence on the project including its assets, approvals and consents, a corporate diligence of the borrower, designing, structuring, drafting, negotiating and finalising the financing transaction documents and providing transaction assistance and advisory to ensure execution of the transaction documents including security documents, overseeing and confirming compliance by borrower of pre-commitment and pre-disbursement conditions, ensuring proper and legal creation and perfection of securities and establishment of suitable escrow mechanism by the borrower and providing legal opinion on validity and enforceability of the financing and security documents based on which disbursements were made.

SBI is a public sector company. Did this change the nature of the deal, or would it have been the same if it were a private company?

SBI is the largest project finance lender in the world and has consistently been ranked as the top project

finance lender in global league tables. SBI’s practices, therefore, are no less sophisticated than any other bank. Private Banks have always looked at SBI as a leader in the sector and have tended to follow practices established by SBI in the context of project finance lending in India. SBI typically is the lead lender in consortium lendings and the consortium banks adopt and follow SBI’s policies and documentation structures approved by it. Commercial terms may vary between SBI and other private banks.

A consortium of three banks have provided financing for the project. Did having multi-investors pose any problems, or is this usual?

In large project finance transactions, such as this transaction, consortium lending is the norm rather than an exception. This is driven by specific regulatory mandates that require banks to restrict their individual exposures to a sector as well as specific borrowers. It is also customary for the consortium lenders to follow the lead lender bank and therefore, the credibility and experience of SBI as the lead lender is taken seriously. While consortium banks may insist on a few additional conditions such as relating to KYC or compliances, however, these usually get standardised in the consortium lending documents. Furthermore, the lending structure involves appointment of a single lenders’ agent and security trustee for and on behalf of all the consortium banks, therefore, decision making on behalf of the lenders is delegated to a single agent (typically a bank who may or may not be part of the lenders consortium) and the borrower accordingly, has to deal with a single bank.

Were there any other key challenges / unique points to concluding this deal?

The consortium lenders from the initial financing continued as lenders for the financing of the expansion project, however, the project risks, regulatory framework and approvals required for the expansion needed to be reviewed and re-evaluated since the expansion was for all purposes, a new project. Furthermore, identifying risks vis-à-vis the present financing, segregation of past and future re payment obligations, extension of old securities and sharing of new securities amongst all the lenders and establishing a suitable escrow mechanism for the project’s receivables involved challenging and unique structuring.

From a transaction structuring perspective, keeping segregated the two sets of financings from the original project and the current expansion project, including the securities, was a challenge. Several assets such as land and certain utilities continued to remain common between the original and expansion projects. Furthermore, the proportion of lending of the original consortium and current consortium (even though the member banks remained the same) was different. Designing an appropriate waterfall mechanism for the escrow account capturing the project receivables, was a complex task not just from a financial perspective but also from a legal structuring perspective.

Nilesh Chandra and Mr. Hemant Sahai

Phone: (+91) (11) 6638 7000 | Fax: (+91) (11) 6638 7099 | Website: www.hsalegal.com