1. Tianjin Plastics Group Gamma Samir Bhargava Jung-Chang Cho
Jennifer Cota
Kurt Ellison
Kelly Hickman
Jiby Mathews

2. Joint Venture Tianjin Plastics / Chinese Ministry of Power Industry
Government owned enterprise
Uses energy-intensive extrusion process for production of
raw industrial plastic products
Maple Energy
U.S. – based international power plant developer
Established in 1989
Successful power plant projects in Argentina, Costa Rica, the Dominican Republic, and the United Kingdom

3. The Proposed Power Plant
140 megawatt coal-fired steam-electric plant
Provide all of Tianjin’s power needs
Excess power to be sold on regional electrical power grid
Construction & testing requires 4 years
Power purchasing agreement with Chinese Ministry of Power Industry
Provision for free coal feedstock for life of power plant

4. Build-Operate-Transfer (BOT) Agreement
Maple-Tianjin-MOPI Joint Venture
– own & manage for 20 years
Turn over to Hebei Province in 2020

5. What is Project Financing?
Typically used for large-scale, long-term projects
Lenders look to assets & cash flow of project
Preferred & primary method for financing infrastructures
Structured as a single-purpose corporation
Lenders have no recourse to non-project assets

6. Choose the best financing option
Issue Defined
Choose the best financing option
Repatriation
Currency Risk

7. Contract Fulfillment Not Guaranteed by Chinese Government
Basic Matrix
Important/ Urgent
Low
High
Export-Import Bank Announcing its Non-Participation in Funding Large Projects in China
Contract Fulfillment Not Guaranteed by Chinese Government
Currency Controls
Exchange Rate Risk

8. Immediate Matrix Important/ Urgent Low High
Inadequate Capital Resources in China
Limits on ROI
Cash Flow Risk
Ensure Repatriation of Original Equity Investment

9. Fishbone Analysis

10. Financing Arrangements

11. Constraints & Opportunities
-Enormous market potential
-Local economic prosperity
Constraints
- Inadequate capital resources
- Investment barriers

12. Available Solutions Indirect RMB Swap Dollar-Indexed Rate Adjustment
Borrow in Local Currency
Back-to-Back Loan

13. Decision Criteria Feasibility Risk Assessment Cost Cash Flow / NPV
Internal Rate of Return

14. Indirect RMB Swap Feasibility?
Not feasible due to lack of financial derivates to hedge
Non-existence of financial markets in China
Chinese government controls the amount of
Rmb converted to hard currency

15. Dollar-Indexed Rate Adjustment
Power price paid by Tianjin Plastics indexed to the dollar
-Simplest solution
-Dependable revenue stream
-Minor role of costs of production
-Earnings essentially guaranteed, preserving U.S. dollar value
Feasibility?
-NO -> MOPI ruled out immediately
-Revenue structure Rmb based
-Negative impact on returns of invested capital

16. Borrow in Local Currency
Feasible?
-Yes
-Cash inflows and outflows in same currency (RMB)
Risk?
-Currency valuation risk
-Maple is not insulated from currency exchange risk
Cost?
-Bank of China will charge 13% interest for 10 year loan
-Initial collateral in 100% dollar-denominated deposit (not required until fourth year)

17. Borrow in Local Currency
Income?
-4% interest in collateral deposit
Repatriation?
-Deposit returned in last 6 years amortization schedule
-Profits exposed to currency risk 17

19. Real Cash Inflows (Repatriation)
Local Currency Loan
Real Cash Inflows (Repatriation)
RMB Appreciate
RMB Depreciate
Date
Exch. Rate (RMB/$)
Real Cash Inflow
Real Cash Inflow
2000
7.51
$ ,567,474.07
10.99
$ ,757,195.74
2001
7.30
$ ,483.46
11.68
$ ,429,573.53
2002
7.11
$ ,592.05
12.28
$ ,622,811.59
2003
6.91
$ ,636.62
12.92
$ ,846,637.51
2004
6.71
$ 1,039,053.31
13.53
$ ,095,140.29
2005
6.51
$ 1,094,057.46
14.06
$ ,362,895.22
2006
6.31
$ ,842.97
14.45
$ ,310.77
Total
$ 7,544,139.95
$ ,166,564.65

20. Back-to-Back Loan Loan of US $8.415m Maple Energy (USA) Wintel (USA)
LIBOR %
Loan of Rmb70.018m
Maple Energy
(CHN)
Wintel - China
(CHN)
10.5%

21. Back-to-Back Loan Feasible? Risk? -Yes -Cash inflows in U.S. Dollars
-Cash outflows in local currency (RMB)
Risk?
-Currency valuation risk borne by Wintel
-Maple insulated from currency exchange risk
-Limited interest rate risk due to variable loan rate

22. Back-to-Back Loan Cost? Income? -Initial capital loaned to Wintel
-Immediately converted to current currency exchange rate (Rmb$8.32/$)
-Wintel will charge 10.5% for six year loan
Income?
-Maple earns LIBOR % return on six year loan 22

23. Back-to-Back Loan Repatriation? -Interest earned on initial capital
-Initial capital returned in 6 years
-Profits not exposed to currency risk 23

24. Real Cash Inflows (Repatriation)
Back-to-Back Loan
Real Cash Inflows (Repatriation)
RMB Appreciate
RMB Depreciate
Date
Exch. Rate (RMB/$)
Real Cash Inflow
Real Cash Inflow
1996
8.32
$ ,776,346.38
1997
1998
1999
2000
7.51
$ ,603,408.81
10.99
$ ,346,399.84
2001
7.30
$ ,558,573.14
11.68
$ ,493,717.03
Total
$ ,267,367.45
$ ,945,502.37

25. Cash Flows for Original Financing Arrangement

26. Borrow in Local Currency vs. Back-to-Back Loan
Cash Flow / NPV:
Borrow in Local Currency: $1,003,415
Back-to-Back Loan: $1,639,503
Internal Rate of Return:
Borrow in Local Currency: 15.2%
Back-to-Back Loan: 15.3%

27. Action Plan Finance with Back-to-Back Loan
Feasible, includes Solving Repatriation Issue
No Currency Risk
Lower Cost than Borrowing in Local Currency
-Netting Interest Expense & Interest Income
Lower Cost Leads to Higher NPV & IRR