In simple terms, "mandate finance" refers to the financial activities centered around a mandate, which is a crucial legal agreement in the world of corporate finance.
Understanding the Mandate in Finance
A mandate, as defined in corporate finance, is a legal document signed by an issuer or a borrower, and which gives mandate (which "entrusts") one or several banks to arrange a placement of securities (E.g. bonds or shares), or a borrowing. (See Chapter 26 Value and corporate finance of the Vernimmen).
Essentially, when a company or government (the issuer or borrower) needs to raise money by issuing bonds or shares, or by taking out a large loan, they don't usually do it alone. They hire expert banks to help them navigate the complex process. The mandate is the formal agreement that appoints these banks and outlines their role and responsibilities.
The Role of a Mandate
The mandate document formalizes the relationship and trust between the entity needing funds (the issuer/borrower) and the financial institution(s) hired to help.
Key aspects covered by a mandate typically include:
- Appointment: Officially designates the bank(s) as the lead arranger(s) or underwriter(s) for the transaction.
- Scope: Defines the specific type of financing (e.g., a bond issuance, a share placement, a syndicated loan).
- Responsibilities: Details the tasks the bank(s) must perform, such as structuring the deal, marketing the securities/loan, finding investors/lenders, and managing the closing process.
- Fees: Specifies the compensation the bank(s) will receive for their services.
- Exclusivity: Often grants the mandated bank(s) the exclusive right to arrange the specific transaction for a defined period.
"Mandate Finance" in Practice
"Mandate finance" therefore describes the ecosystem and processes that revolve around these agreements. It involves:
- Issuers/Borrowers: Companies, governments, or other entities seeking capital.
- Mandated Banks: Investment banks, commercial banks, or syndicates of banks entrusted with arranging the finance.
- The Transaction: The specific financing activity being undertaken (e.g., an Initial Public Offering (IPO), a corporate bond issuance, a syndicated loan).
- The Mandate Document: The legal cornerstone of the entire process.
Think of it as the structure and execution of complex financing deals initiated and governed by a formal mandate agreement between the party raising funds and the bank(s) facilitating it.
Examples of Mandate Finance Activities
- A corporation hiring a bank to manage its IPO (Initial Public Offering).
- A government issuing bonds and mandating a group of banks to underwrite and sell them.
- A large company seeking a syndicated loan facility and giving a mandate to lead banks to arrange it.
In each case, the bank receives a mandate to arrange the finance, and the overall activity falls under the umbrella of "mandate finance". It's the system by which large-scale capital raising and lending transactions are formally structured and executed in the financial markets.
