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  • ftyfyftyftymfmfhe surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communi

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    he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion inhe surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sec

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    he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion inhe surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sec

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    ftyfyftyftymfmfhe surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communi

    Uploaded by

    Chineseaap
    he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion inhe surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sector by the year 2000, for example, are hampered by the ceiling of 15% put on investment rates of return. “Struggling With Reform,”he surge in foreign direct investment spending is easing back from its 1994 highs as the authorities seek to channel funds into so-called priority areas—away from real estate and towards high-tech manufacturing production, infrastructure expenditure, energy and communications and, on a geographical basis, increasingly into the 18 inland provinces. Recent guidelines, however, continue to fail to offer sufficient incentives for expanded participation in the infrastructure sector as far as foreign investors are concerned. Plans to attract US$20 billion into China’s power sec

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    FINC627 International Finance Case write-up: Tianjin Plastics Li Yu EXECUTIVE SUMMARY: Maple Engery (U.S), a U.S.

    -based power plant provider, is evaluating the prospects for a project financing of the Tianjin Plastics power plant project in China in 1996. The proposed project financing agreement must ensure the financial viability of the project. In addition, the proposal must consider both the currency risk of potential RMB devaluation and the impact of substantial barriers to investing in China, including y Chinese government limited the target ROI between 15%-17%, while analyst estimated at least 18% was needed to adequate compensation for projects of this type. y Chinese government may refuse to guarantee fulfillment of a contract like this. This increased the project risk, hence the cost of borrowing. y Chinese government did not allow equity investment to be repatriated. Maple Engerymust find a solution to repatriate its invested capital. The case discussed in details of three options for repatriation of Maples equity investment, including back-to-back loans, dollar-indexed rate adjustment, and RMB swaps. We found backto-back loan was the most attractive option, with a NPV of $11.6 million and a discounted payback period of 5 years. Maple can also lock a fixed exchange rate at 8.32 RMB/$ for six years.

    FINC627 International Finance Case write-up: Tianjin Plastics Li Yu Project overview 1. Background Maple Energy, a wholly-owned subsidiary of Northern States Utilities, was established in 1989. Maple was a developer of power plan projects and successfully completed power plan projects in four countries. In 1996, Maple had concluded the power purchasing agreement(PPA) with the Chinese Ministry of Power Industry (MOPI), with a free coal feedstock for the life of the power plant (20+ years). Maple formed a joint venture with Tianjin Plastics and MOPI to operate the power plant for 20 years and would hand out the control of the power plant to local government. The market potential for similar power plant projects in China was enormous. The projected power demand in China would be 21 gigawatts of new capacity each year, 150,000 times of the capacity of Maples power plant project. 2. Project Financing 2.1 Capital Structure

    The project financing including two phases: construction phase(4 years) and post completion phase. 2.1.1 Construction phases In the construction phases, total capital of $93.5 was provided through a combination of loans from project sponsors( Maple Energy and Tianjin Plastics), equipment vendors and bank loans. The detailed schedule and cost is listed in EXHIBIT 1 and EXHIBIT 2. Timeline for Project Financing
    Draw down $16.5 Draw down $27.5 bank loan from three sponsors
    1996 1997

    Draw down $27.5 bank loan


    1998

    Draw down $22 from equipment vendors

    1999

    2000

    Interest and principal repayment

    EXHIBIT 1 Timeline for construction phase

    FINC627 International Finance Case write-up: Tianjin Plastics Li Yu


    Construction Financing $Mil Equity Maple Engery Tianjin Plastic MOPI Debt Equipment Vendors Bank loan Total Invest % of USD % of RMB 49% 46% 5% 8.09 7.59 0.82 RMB equivalent Currency Cost of Debt 9% 14% 14%

    USD 63.16 RMB 6.82 RMB

    29% 71%

    22 55 93.50 91% 9%

    USD USD

    9% 9%

    EXHIBIT 2Detailed financing in construction phase

    2.1.2 Post completion phase Upon the construction completion, the principle of the three sponsors would convert into equity, and accrued interest and the rest of the principle would be arranged by Bank of China loan and two tranches of syndication loan. The project WACC would be 9.3%.
    Post ompletion Finaning $Mil Total Equity Debt Principle Accrued Interest Total Debt Total Capital Project WACC Debt Stutue 16.50 77.00 23.90 100.90 117.40 9.3% % 14% Cost of Capital 18.00%

    86%

    7.83%

    Bank of hina loan Syndiation loan Limited recourse tranch non recourse tranch Total syndiation loan Total Debt % of USD % of RMB

    $Mil

    RMB equivalent Currency Cost of Debt Loan Term (y) 10.9 90.7 RMB 13% 12 33.0 57.0 90.0 USD USD 0.95%+LIBOR 1.75%+LIBOR 6 10

    100.90 89% 11%

    EXHIBIT 3Detailed financing in post completion phase

    FINC627 International Finance Case write-up: Tianjin Plastics Li Yu


    De bt he dule Ban of hina Inte rest ayme nt riniple re pay e ndin balane

    2000 10.9 1.42 1.84 0.4 10.5 2000 33.0 2.21 6.86 4.6 28.4 2000 57.0 4.3 8.3 4.0 53.0 7.90 9.1 17.01

    2001 10.5 1.36 1.84 0.5 10.0 2001 28.4 1.90 6.86 5.0 23.4 2001 53.0 4.0 8.3 4.3 48.6 7.23 9.8 17.01

    2002 10.0 1.30 1.84 0.5 9.5 2002 23.4 1.57 6.86 5.3 18.1 2002 48.6 3.6 8.3 4.7 44.0 6.51 10.5 17.01

    2003 9.5 1.23 1.84 0.6 8.8 2003 18.1 1.21 6.86 5.6 12.5 2003 44.0 3.3 8.3 5.0 39.0 5.74 11.3 17.01

    2004 8.8 1.15 1.84 0.7 8.1 2004 12.5 0.83 6.86 6.0 6.4 2004 39.0 2.9 8.3 5.4 33.6 4.91 12.1 17.01

    2005 8.1 1.06 1.84 0.8 7.4 2005 6.4 0.43 6.86 6.4 0.0 2005 33.6 2.5 8.3 5.8 27.8 4.01 13.0 17.01

    2006 2007 2008 2009 2010 2011 7.4 6.5 5.5 4.3 3.1 1.6 0.96 0.84 0.71 0.57 0.40 0.21 1.84 1.84 1.84 1.84 1.84 1.84 0.9 1.0 1.1 1.3 1.4 1.6 6.5 5.5 4.3 3.1 1.6 0.0 2006 2007 2008 2009 2010 2011

    De bt Sche dule Limite d recourse tranch Inte rest ayme nt rinciple re pay e ndin balance De bt Sche dule Non recourse tranch Inte rest ayme nt rinciple re pay e ndin balance Total inte rest Total principle total payme nt

    2006 2007 2008 2009 2010 2011 27.8 21.6 14.9 7.7 2.1 1.6 1.1 0.6 8.3 8.3 8.3 8.3 6.2 6.7 7.2 7.7 21.6 14.9 7.7 0.0 3.04 2.46 1.83 1.14 0.40 0.21 7.1 7.7 8.3 9.0 1.4 1.6 10.15 10.15 10.15 10.15 1.84 1.84

    EXHIBIT 4 Detailed debt schedule

    3. Project cash flow forecast Annual operating margin was forecasted to be RMB178 million with 3% annual growth rate; The project would have a six year tax holiday and the normal tax rate was 40%; Annual depreciation expense was RMB98 million for 10 years and required reinvestment was 25% of the depreciation expense; Maples required hurdle rate was 15%, but should be higher in this case due to higher risk associated in Chinese market. We set the hurdle rate at 18%, according to analyst estimation of ROI. Since Chinese government had limited ROI to between 15%-17%, we adjusted net income to reflect the restriction.For easy calculation, we used a mid-year factor, we assume the cash inflow/outflow was occurred in the middle of the year. Currency Risk The outlook for RMB was uncertain. As illustrated in EXHIBIT 6, Chinese government has imported inflate by stabilization its currency. Interest Rate Parity Chinas interest rate was about 5% higher than U.S interest rate. The cost of the construction loan in this project was at 14% for RMB loan and 9% for US loan. The case also cited a 10 year US loan of 8% and a 10 year RMB loan of 13%. Therefore, if IRP applies, RMB would depreciate about 5% during the course of Maple project. Lets assume RMB would depreciate 5% in 2000, the target date that bank of China set for full convertibility. Maple would face 4

    FINC627 International Finance Case write-up: Tianjin Plastics Li Yu substantial currency risk before the full convertibility of RMB, because of the lack of financial derivatives to hedge RMB. Since RMB was only about 10% of the total capital in both construction phase and post completion phase (EXHIBIT 2 and 3), we assume all the revenue and expense was converted to USD. The project NPV would be $14.1 million; the project payback would be 8 years without construction extension risk; the equity NPV for Maple would be $3.74 million; the equity payback would be 6.4 years (EXHIBIT 5).
    Pro Forma Projection for Maple Tianjin Project (Base Case) Assumptions EBIT margin growth Tax rate (first 6 years) Annual Depreciation (for 10 years in RMB mils) Capex = 25%*Dep Hurdle Rate (cost of equity) WACC Midyear Factor Exchange (RMB/$) Exchange (RMB/$) New Project NPV and payback 1996 EBIT (in RMB) EBIT (in $,RMB/$ = 8.736 EBIT (1-t) Depreciation ($) CAPEX (25% of Dep) FCFF Adjust for ROI @ 17% Initial Cash Outlay PV of Cash Flow (@WACC) IRR Project NPV ($mils) Project payback (y) Equity NPV and payback for Maple 1996 EBIT (in RMB) EBIT (in $,RMB/$ = 8.736 Interest expense EBT Tax NI NI caped at ROI = 17% NI adjustment Depreciation ($) CAPEX (25% of Dep) Net Debt FCFE FCFE for maple (49%) Initial Cash Outlay PV of FCFE @Hurdle Rate IRR Equity NPV (Maple) Discounted Equity Payback 1997 1998 1999 2000 178.0 20.4 7.9 12.5 0.0 12.5 12.5 0.0 11.2 2.8 -9.1 11.8 5.8 -8.085 -8.085 44.7% $3.74 6.4 2.7 2001 183.3 21.0 7.2 13.8 0.0 13.8 13.8 0.0 11.2 2.8 -9.8 12.4 6.1 2.4 2002 188.8 21.6 6.5 15.1 0.0 15.1 15.1 0.0 11.2 2.8 -10.5 13.0 6.4 2.2 2003 194.5 22.3 5.7 16.5 0.0 16.5 15.9 -0.6 11.2 2.8 -11.3 13.0 6.4 1.8 2004 200.3 22.9 4.9 18.0 0.0 18.0 15.9 -2.1 11.2 2.8 -12.1 12.2 6.0 1.5 2005 206.4 23.6 4.0 19.6 0.0 19.6 15.9 -3.7 11.2 2.8 -13.0 11.3 5.5 1.2 1997 1998 1999 2000 178.0 20.4 20.4 11.2 2.8 28.8 28.8 -16.5 -16.5 14.1% $14.14 7.9 -27.5 -25.2 -27.5 -23 -22 -16.9 19.3 2001 183.3 21.0 21.0 11.2 2.8 29.4 29.4 18.1 2002 188.8 21.6 21.6 11.2 2.8 30.0 30.0 16.9 2003 194.5 22.3 22.3 11.2 2.8 30.7 30.0 15.5 2004 200.3 22.9 22.9 11.2 2.8 31.3 29.2 13.8 2005 206.4 23.6 23.6 11.2 2.8 32.0 28.3 12.2 3% 0% 98 25 18% 9.3% 50.0% 8.32 8.736

    EXHIBIT 5 Pro forma projection for Tianjin Plastic power plant project

    FINC627 International Finance Case write-up: Tianjin Plastics Li Yu


    Inf  t  n (%) 30 25 20 15 24 1 10 5 0 9 3 18 8 6 5 7 3 18 6 4 14 7 3 1 3 4 17 1 8 3

    Inflation and Exchange Rate in China


    RMB/$ 10 8 6187 8 351 8 3142 9 8 7 6 5 4 3 2 1 0

    1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996   I f    Exch  e ! e( !"#/$)

    EXHIBIT 6 Inflation and exchange rate in China1

    4. Analysis the repatriation options 4.1 Dollar indexed rate adjustment clauses The simplest solution to repatriate Maples equity was to have the power price paid by Tianjin Plastics indexed to the dollar. The major cost of this project was the financing cost because the cost of coal, the variable cost, was free. The NPV and payback in this case was shown in EXHIBIT 5. However, MOPI had ruled out the solution as the revenue structure of Tianjin itself was purely RMB. 4.2 Back to back loan The back to back loan was essentially a currency swap. Maple would be the fixed rate payer that borrows RMB from Wintel for six years at 10.5%; Wintel would be the float rate payer that borrows USD from Maple for six years at LIBOR+1.45%. Both parties would be better off in this back to back loan structure. Maples discount rate would be only 10.5%, rather than 18% (the hurdle rate). In addition, Maple also locked in an exchange rate of 8.32RMB/$. The NPV dollar equivalent for Maple would be $11.6 million, substantially higher than $3.74 million in
    http://www.rmbguide.com/China_RMB_yuan_Dollar.htm and http://www.indexmundi.com/china/inflation_rate_%28consumer_prices%29.html
    1

    FINC627 International Finance Case write-up: Tianjin Plastics Li Yu previous scenario. The payback period would also be reduced to 5year from previous 6.4 years.The improved result was the result of improved hurdle rate and the offset of the currency risk.
    & Ba$% ' (a$% )'an Ana)y010

    1996 EBIT ( 2n RMB) 4 4 In e 5e 6 e7 pen 6e EBT Tax NI NI caped at ROI = 17% NI adju 6tment Dep 5ec2ation ( 8) CAPEX ( 25% of Dep) N e t Debt FCFE FCFE for map 9e ( 49%) PV of FCFE @( 1035%) IRR Map 9e NPV i n RMB Map 9e NPV i n $ Discounted Paybac@
    EXHIBIT 7 Back to back loan analysis

    1997

    1998

    1999

    -6733 1631% 9636 1136 530

    2000 17830 6538 11232 030 11232 11232 030 9830 2435 -7537 11030 5339 3434

    2001 18333 6032 12332 030 12332 12332 030 9830 2435 -8133 11534 5635 3236

    2002 18838 5432 13436 030 13436 13232 -234 9830 2435 -8733 11835 5830 3033

    2003 19435 4738 14637 030 14637 13232 -1435 9830 2435 -9337 11230 5439 2630

    2004 20033 4038 15935 030 15935 13232 -2733 9830 2435 -10037 10531 5135 2230

    2005 20634 3334 17330 030 17330 13232 -4037 9830 2435 -10831 9736 4738 1835

    4.3 RMB swap The last solution was to finance the majority of the project in RMB at 13%, cost of equity in this case would be 18%-4% = 14%, since Maple can earn 4% interest rate for its US$ deposit. The resulted Maple NPV in USD term would be $5.4 million, at exchange rate of 8.74 (assume 5% depreciation of RMB)
    Total Equity Total Debt De B DEFe GHIe BeP Qnning baIan Ee Inte Re St PayTe nt Prin Eiple re pay e nding balan Ee RMB i n mils Cost 14% 142A894 844A480 13% WACC 13A1% 2000 2001 844A5 109A8 155A6 45A8 798A6 798A6 59A9 155A6 95A7 702A9

    2002 702A9 52A7 155A6 102A9 600A0

    2003 600A0 45A0 155A6 110A6 489A4

    2004 489A4 36A7 155A6 118A9 370A4

    2005 370A4 27A8 155A6 127A8 242A6

    2006 2007 2008 2009 242A6 18A2 155A6 137A4 105A2 105A2 -42A6 -201A4 7A9 -3A2 -15A1 155A6 155A6 155A6 147A7 158A8 170A7 -42A6 -201A4 -372A1

    EXHIBIT 8 Debt schedule and cost of equity of RMB swap

    FINC627 International Finance Case write-up: Tianjin Plastics Li Yu


    Pro Forma Projection for Maple Tianjin Project (RMB swap Case) Assumptions EBIT margin growth Tax rate (first 6 years) Annual Depreciation (for 10 years in RMB mils) Capex = 25%*Dep Hurdle Rate (cost of equity) WACC Midyear Factor Exchange (RMB/$) Exchange (RMB/$) New Project NPV and payback 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

    3% 0% 98 25 14% 13.1% 50.0% 8.32 8.736

    EBIT (in RMB) EBIT (1-t) Depreciation ($) CAPEX (25% of Dep) FCFF Adjust for ROI @ 17% Initial Cash Outlay PV of Cash Flow (@WACC) IRR Project NPV in RMB mils Project NPV in $ miles Project payback (y) Maple NPV and Payback Analysis

    178.0 178.0 98.0 24.5 251.5 251.5 -844.5 -340.8 88.1% $163.12 18.67 6.9

    183.3 183.3 98.0 24.5 256.8 256.8

    188.8 188.8 98.0 24.5 262.3 258.5

    194.5 194.5 98.0 24.5 268.0 250.7 99.6

    200.3 200.3 98.0 24.5 273.8 242.4 85.2

    206.4 206.4 98.0 24.5 279.9 233.5 72.5

    130.5 116.1

    1996 EBIT (in RMB) Interest expense EBT Tax NI NI caped at ROI = 17% NI adjustment Depreciation ($) CAPEX (25% of Dep) Net Debt FCFE FCFE for maple (49%) PV of FCFE @(14%) IRR Maple NPV in RMB Maple NPV in $ Discounted Payback

    1997

    1998

    1999

    -67.3 9.4% 46.8 5.4 5.7

    2000 178.0 109.8 68.2 0.0 68.2 68.2 0.0 98.0 24.5 -45.8 95.9 47.0 26.1

    2001 183.3 59.9 123.4 0.0 123.4 123.4 0.0 98.0 24.5 -95.7 101.2 49.6 24.1

    2002 188.8 52.7 136.1 0.0 136.1 132.2 -3.9 98.0 24.5 -102.9 102.8 50.4 21.5

    2003 194.5 45.0 149.5 0.0 149.5 132.2 -17.3 98.0 24.5 -110.6 95.1 46.6 17.4

    2004 200.3 36.7 163.6 0.0 163.6 132.2 -31.4 98.0 24.5 -118.9 86.8 42.5 14.0

    2005 206.4 27.8 178.6 0.0 178.6 132.2 -46.3 98.0 24.5 -127.8 77.9 38.2 11.0

    FINC627 International Finance Case write-up: Tianjin Plastics Li Yu


    EXHIBIT 9 RMB swap analysis

    Do UUVr WXdexed rVte Ter as bevenue cnded ed to do eear gap ee's cnvest aent Equ ctp cn US q fro a bevenue strea a ($) bepatr cat con

    BVck to YVck UoV X

    RMB ` wVp

    dvantat e

    ost of debt Cost of equ cty rs CC gap ee vPV qcscount Payback

    qcsadvantate w

    S cap ee vegat cve capact on gOPI's bOIC bevenue structure of T canj cn was on ey bgf St cee face currency r csk h 7.8 h 18.0 h 9.3 $3.74 6.39

    h forrow bgf at 10.5 for ga iee's equ ctp ; h bece cve US q cnvest aent at 1.45 + LI fO b p Equ ct cn bgf r fro a cnte e's US q pap aent h bgf/$ f cd ed at 8.32 for 6 years forrow at eower rate for bot u part ces

    h forrow bgf at 13 for ent cre project h bece cve US q cnvest aent at 4 p Equ ct cn bgf bevenue cn bgf gatch Project's bgf cash cnf eow/outf eow gap ee st cee face currency r csk for cts share of prof ct h 13.0 h 14.0 h
    13.1 $5.36 5.71

    7.8 h 10.5 h 8.2 $11.61 5.01

    EXHIBIT 10 Comparison of three alternatives

    5. Conclusion Maple should choose back to back loan with Wintel to financing its equity, as the dollar indexed rate proposal had been rejected by MOPI and the cost of funding the entire project in RMB (RMB swap) would be too high. In addition, Maple would lock in a fixed exchange rate of 8.32 RMB/$. However, Maple would still face currency risk if Maples shared profit cant satisfy the interest payment of RMB7.4 million per year.

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