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project finance

project finance

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Published by Aditi Aggarwal
pf case
pf case

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Published by: Aditi Aggarwal on Feb 04, 2013
Copyright:Attribution Non-commercial


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1:Introduction: Case (1/2)August 2000Hong Kong International Theme Parks Ltd (HKTP):an entity jointly owned byThe Walt Disney Company and the Hong Kong governmentHKTP awardedChaseManhattan Bank the mandate to lead a HK$3.3 bnbankfinancing for the construction of the HK$14bnHKTP and resort complex17 major banks invited to bid on dealDisney chose Chasebecause of itsglobal leadership in syndicated finance andits firm commitment to underwrite the full loanamountChaser responsible for raising the funds regardless of how the bank market reacted to thedeal.2:Introduction: Case (2/2)Chase HQs in NY, but HK office responsiblefor executing the dealDeliver asyndication thatmetboth thebank markets expectations forparticipation levels and credit quality , andthesponsors desire for a rapidclosing with a supportive bank groupDirectconsequences onChases reputation as a leader in syndicatedfinance, its returns as an underwriter, and its creditexposure as a lenderAlternatives: ±General Syndication ±2-stage Syndication, with a sub-underwritingprior to prior to generalsyndicationDecide: ±Banks to invite ±Allocation of fees and titles ±Loan toretain onB/S3Introduction: Hong Kong (1/2)150 years as aBritish ColonyIn1997, HK became theHong Kong SpecialAdministrativeRegion(HKSAR) within the Peoples Republic of ChinaTransfer of SovereigntyAgreement, China assured SAR a highdegree of autonomyunder a one country, two systemsconceptSome concerns: political freedoms and civil rights, butpreservedBritish legal system and freemarket economyNew govt. maintained low taxes, unrestricted capitalmovement, a stable HK$, and aduty free port.4Introduction: Hong Kong (2/2)One among the Asian TigersIts prosperity ranked with large countries in WesternEuropeEconomy: ±Based on services, tourism and international trade ±Few natural resources;relatively high labour costsRecession: ±Thai currency crisis 1997 ±Unemployment rate more thandoubled ±GDP fell for the first time in 20 years ±Stock market crashed ±Tentative recovery by mid-1999±Decline in o/p remained a subject of public concernPeople on HK banking on a Disney theme park tocreate more jobs andend a slump in tourismIntroduction: Hong Kong (2/2)5Introduction: The Walt Disney Company (1/2)Inception in 1923Multinational, multimediaentertainment giantRevenues > $20bnDebt rating: AAnnualOperating cash flow:
$5bnBusinessSegments:1.Theme Parks and Resorts2.Media Networks3.StudioEntertainment4.Consumer Products5.Internet/Direct Marketing7 Theme parks (+4 in the works), 27hotels with 36,888 rooms, 2 cruiseships, 728 Disney stores, 1 broadcast n/w, 10 TV stations,9international Disney channels, 42 radio stations, 1 internet portal, 5major internet websites, interestsin 9 US cable networks, and a librarycontaining thousands of animated and live films and TV episodes.6:Introduction: The Walt Disney CompanyTheme Parks and Resorts segment ±Companyowned and operated the original Disneyland inAnaheim,California and the Walt Disney World resort complex inOrlando,Florida ±US and Tokyo parkssuccessful ±Earnedf ees&royalties on Tokyo Disneyland(1983) and DisneylandParis(1992)DisneylandParis experiencedf inancial problems due to: ±European recession ±Large initial capital expenditures±Overly aggressive capital structure, dependent upon real estatesales for debt service (project debt =75% of project value) ±To avoid bankruptcy, had to forgo some of its management andother fees; banksactive in HK market restructured loansImportance of international growth: US gives 80% of itsrevenues,has only 5% of world population7Introduction: Hong Kong Disneyland (1/5)In December1999, Disney and the HK Govt. signed acomprehensiveagreementfor a new theme park and resort complex to be located onthenortheasternend of LantauIsland.According to the agreement, the project would have3phases:±Phase I would include a Disneyland-style park with several themed lands featuring Disney ridesand attractions, as well as one or two hotels and aretail, dining, and entertainment complex. ±Phases IIand III were less well defined, but included options to developadjoining sites at some point in thefuture.Development strategy: ±Learning from our experience with Disneyland Paris [a deal thatexperienced financial problemsshortly after opening] , the strategy for Hong Kong was tostart small andthen toadd capacity over time as demand grew. ±In fact, Phase I included plans to double capacitywithin the first ten years of operations. The real keys to success are having the land available forgrowthand the ability to finance this growth out of operating cash flow.8Introduction: Hong Kong Disneyland (2/5)Because most of the construction site was currently ocean,thesponsors had to reclaim land.The HK Govt. agreed to pay for land reclamation andinfrastructuredevelopment at a cost of HK $14 billion.According to the target dates, land reclamationwould begin at theend of 2000, resort construction would begin in 2002, and the parkwould open forbusiness in 2005.The Government supported the project because it expected thepark togeneratesizable public benef its. One local economist estimated that land reclamationandconstruction would generate 16,000 new jobs, while the resortwould generate 18,000 jobs atopening and up to 36,000 jobswithin ten years.
9Introduction: Hong Kong Disneyland (3/5)A new corporation,HongkongInternational ThemeParksLimited (HKTP), was created to construct,own, operate, andfinance the project.It planned toraise the HK $14 billion construction cost from4 sources:This sum does not include an additional $14billion of landvalue and associated infrastructure development contributedby the HK Govt.10Introduction: Hong Kong Disneyland (4/5)The HK Govt. and Disney agreed to provideequity shares of HK $3.25billion (57% share) and HK $2.45 billion (43% share), respectively.In addition, the HK Govt.agreed to provide HK $6.1 billion of su bordinated debt with a 25-year maturity and repayments starting11years after opening day.This left ashortf all of HK $2.3 billion (16% of total capital), which theHKGovt. hoped to fill with some kind of external finance.Inclusion of private sectorf inancing wouldnot only show that the projectwas viable in the eyes of the international banking community, butwouldalso provide independent oversight of construction as well as monitoringof ongoingoperations.Eventually, HKTP decided to raise HK $2.3 billion through a 15-year,non-recourse termloan for construction and HK $1.0 billion in a 15-year,non-recourse revolving creditf acilityfor post-construction working capitalneeds.11Introduction: Hong Kong Disneyland (5/5)Because HKTP did not need significant construction fundsuntil aftertheland reclamation was complete, it had theoption of waiting until 2002 before raising the bank debt.Bywaiting, it could delay paying thecommitmentf ees charged bythe banks.Although it had two years inwhich to place the commercial loan,the Asian loan market was showing signs of recovery by early2000.Knowing the structuring and syndication process could take six tonine months, it decided tostartthe process sooner rather than later.Itsf ear, given the recentvolatility in the Asian banking market,wasthat if it waited until 2002, it might not be able to get a loan, nevermind a loan with attractivepricing.12Winning the MandateDisney DealTeamfor HK$3.3 bnfinancing: ±VP, Corporate Finance and assistanttreasurer ±Director, Corporate Finance ±Manager, Corporate Finance ±Senior Analyst, CorporateFinance ±VP and CounselDeveloped aTermSheet for bank financing and contactedcompanysrelationship banks and other banks expert in HK syndicated loan marketDiscussions: Getpreliminary expression of interest and assessment of current conditions in HK bank marketDisneyexplained: wanted to raise HK$3.3 bnnon-recourse loan packageon a fully underwritten basis andexpected to scale up to 3 lead arrangersfor the transaction.13

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