The University of Lusaka (Unilus) intends to build a new campus on a newly acquired piece of land along the Great East Road. It intends to use the project finance model to realize this project and has therefore set up a special purpose vehicle (SPV) called University of Lusaka(2014) Limited(Unilus 2014).Unilus will hold 60% of the equity of Unilus 2014 while the other 40% will be shared equally between City Works Construction Limited and Top-Hole consulting Limited.

The total cost of this project is $2Million.The shareholders will provide $500,000 while the balance will be raised from the Zambian syndicated loan Markets. The idea to raise funds from via a syndicated loan was made by the consultants who were engaged to the best way of financing the project. The shareholders and project team have limited knowledge on what loan syndication entails.

Required:

1) Explain the forms of compensation typically available to banks who participate in a syndicate.

2) The project company in the process of arranging finance through syndication will engage an investment banker(s) to be the arranger. Explain the two ways in which investment bankers can bid for the role of lead arranger and in what circumstances each of the ways would be suitable.

2) Lead managers typically invite a number of banks to participate in the syndicate by way of booking the transaction on their balance sheets. However, in practice not all banks take up the invitation to participate. Discuss some of the reasons banks cite for their non-participation in a project finance deal