Tianjin PlasticsGroup Gamma

Samir Bhargava

Jung-Chang Cho

Jennifer Cota

Kurt Ellison

Kelly Hickman

Jiby Mathews

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

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

Build-Operate-Transfer (BOT) Agreement

Maple-Tianjin-MOPI Joint Venture – own & manage for 20 years

Turn over to Hebei Province in 2020

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

Issue Defined

Choose the best financing option

Repatriation

Currency Risk

Basic Matrix

Important/ Urgent

Low High

Low

Export-Import Bank Announcing its Non-

Participation in Funding Large Projects in China

Contract Fulfillment Not Guaranteed by

Chinese Government

High Currency Controls Exchange Rate Risk

Immediate Matrix

Important/Urgent

Low High

Low Inadequate Capital

Resources in ChinaLimits on ROI

High Cash Flow RiskEnsure Repatriation of Original

Equity Investment

Fishbone Analysis

High Investment Risk in China

Repatriation

GovernmentRestrictions

and Guidelines

Chinese Currency Valuation &

Exchange Rate Risk

Economic & Political risk

Financing Arrangements

$117.4 million

Debt: $ 100.9 million(Bank of China and

Syndication loan)

Equity$16.5 million

Maple (49%)$8.085 million

MOPI (5%)$0.825 million

Tianjin Plastics (46%)$ 7.59 million

Constraints & OpportunitiesOpportunities

-Enormous market potential-Local economic prosperity

Constraints- Inadequate capital resources- Investment barriers

Available Solutions

Indirect RMB Swap

Dollar-Indexed Rate Adjustment

Borrow in Local Currency

Back-to-Back Loan

Decision Criteria

Feasibility

Risk Assessment

Cost

Cash Flow / NPV

Internal Rate of Return

Indirect RMB SwapFeasibility?

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

Dollar-Indexed Rate Dollar-Indexed Rate AdjustmentAdjustment

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

Borrow in Local CurrencyFeasible?

-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)

Borrow in Local Currency

Income?-4% interest in collateral deposit

Repatriation?-Deposit returned in last 6 years amortization

schedule-Profits exposed to currency risk

Local Currency LoanReal Cash Inflows (Repatriation)RMB Appreciate RMB Depreciate

DateExch. Rate

(RMB/$)Real Cash

InflowExch. Rate

(RMB/$)Real Cash

Inflow

2000 7.51 $ 2,567,474.07 10.99

$ 3,757,195.74

2001 7.30 $ 893,483.46 11.68

$ 1,429,573.53

2002 7.11 $ 939,592.05 12.28

$ 1,622,811.59

2003 6.91 $ 987,636.62 12.92

$ 1,846,637.51

2004 6.71 $ 1,039,053.31 13.53

$ 2,095,140.29

2005 6.51 $ 1,094,057.46 14.06

$ 2,362,895.22

2006 6.31 $ 22,842.97 14.45

$ 52,310.77

Total $ 7,544,139.95

$ 13,166,564.65

Back-to-Back Loan

Maple Energy(USA)

Maple Energy(CHN)

Wintel(USA)

Wintel - China(CHN)

Loan of US $8.415m

LIBOR + 1.45%

Loan of Rmb70.018m

10.5%

Back-to-Back LoanFeasible?

-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

Back-to-Back LoanCost?

-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 + 1.45% return on six year loan

Back-to-Back Loan

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

Back-to-Back LoanReal Cash Inflows (Repatriation)

RMB Appreciate RMB Depreciate

DateExch. Rate

(RMB/$)Real Cash

Inflow

Exch. Rate

(RMB/$)Real Cash

Inflow

1996 8.32 $ 1,776,346.38 8.32

$ 1,776,346.38

1997 8.32 $ 1,776,346.38 8.32

$ 1,776,346.38

1998 8.32 $ 1,776,346.38 8.32

$ 1,776,346.38

1999 8.32 $ 1,776,346.38 8.32

$ 1,776,346.38

2000 7.51 $ 1,603,408.81 10.99

$ 2,346,399.84

2001 7.30 $ 1,558,573.14 11.68

$ 2,493,717.03

Total $ 10,267,367.45

$ 11,945,502.37

Cash Flows for Original Financing Arrangement

0 Initial Investment (16,500,000)$ 13 7/1/08-6/30/09 26,941,466$ 1 7/1/96-6/30/97 (27,500,000)$ 14 7/1/09-6/30/10 27,840,772$ 2 7/1/97-6/30/98 (27,500,000)$ 15 7/1/10-6/30/11 17,011,575$ 3 7/1/98-6/30/99 (22,000,000)$ 16 7/1/11-6/30/12 17,641,628$ 4 7/1/99-6/30/00 (23,900,000)$ 17 7/1/12-6/30/13 18,301,834$ 5 7/1/00-6/30/01 23,364,327$ 18 7/1/13-6/30/14 18,850,889$ 6 7/1/01-6/30/02 25,073,523$ 19 7/1/14-6/30/15 19,416,416$ 7 7/1/02-6/30/03 26,900,522$ 20 7/1/15-6/30/16 19,998,909$ 8 7/1/03-6/30/04 28,855,912$ 21 7/1/16-6/30/17 20,598,876$ 9 7/1/04-6/30/05 30,951,417$ 22 7/1/17-6/30/18 21,216,842$

10 7/1/05-6/30/06 32,571,094$ 23 7/1/18-6/30/19 21,853,347$ 11 7/1/06-6/30/07 25,280,418$ 24 7/1/19-6/30/20 22,508,948$ 12 7/1/07-6/30/08 26,089,066$

Borrow in Local Currency vs. Back-to-Back Loan

Cash Flow / NPV: Borrow in Local Currency: $1,003,415Back-to-Back Loan: $1,639,503

Internal Rate of Return:Borrow in Local Currency: 15.2%Back-to-Back Loan: 15.3%

Action PlanFinance 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