Keepwell agreement is the agreement between parent company and its subsidiary company in which parent company gives the written promise that it will keep the solvent to its subsidiary company if there is the risk of insolvency up to end of agreement. This agreement may be 5 years or 10 years or any period which has been mentioned in the agreement.
This agreement is very important because all the company who gives the loan to subsidiary company will use this written keepwell agreement as the guarantee for repayment. Some financial company will give loan to subsidiary company if its parent company will do such agreement with its subsidiary company because all such financial company or companies feel risk when it or they will give loan to subsidiary company.
For example, One of the famous Japanese's telecom company's subsidiary company wants to start his business in India. There is already big competition in Indian market. But subsidiary company has the confidence to grow in Indian market. For this, it need Rs. 1000 billion. No financial institute wants to give such big debt. One financial institute is ready to give same debt if its parent company will do the agreement of keepwell with its parent company for 10 years. Its parent company has $ 200 capital. So, it has good reputation in the market. On this offer, its parent company did the same written agreement. On this agreement, its subsidiary company has obtained Rs. 1000 billion debt. Now, if in 10 years, subsidiary company will not pay its debt, parent company will pay for keeping its subsidiary company as solvent company.
This agreement will increase the creditworthiness of subsidiary company. Following is the sample of keep-well agreement.
This agreement is very important because all the company who gives the loan to subsidiary company will use this written keepwell agreement as the guarantee for repayment. Some financial company will give loan to subsidiary company if its parent company will do such agreement with its subsidiary company because all such financial company or companies feel risk when it or they will give loan to subsidiary company.
For example, One of the famous Japanese's telecom company's subsidiary company wants to start his business in India. There is already big competition in Indian market. But subsidiary company has the confidence to grow in Indian market. For this, it need Rs. 1000 billion. No financial institute wants to give such big debt. One financial institute is ready to give same debt if its parent company will do the agreement of keepwell with its parent company for 10 years. Its parent company has $ 200 capital. So, it has good reputation in the market. On this offer, its parent company did the same written agreement. On this agreement, its subsidiary company has obtained Rs. 1000 billion debt. Now, if in 10 years, subsidiary company will not pay its debt, parent company will pay for keeping its subsidiary company as solvent company.
This agreement will increase the creditworthiness of subsidiary company. Following is the sample of keep-well agreement.
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