China Finance

Syndicated Loans

• A method provides large pool of credit
• Mandate initiated by borrower
• Lead bank with other banks via placement memorandum

Parties of the Syndication

• Lead bank
• 4 functions: sourcing, structure, sell and service
• Participating bank
• Other banks participate in the loan process
• Agent
• responsible for collecting payments due and disbursing these payments to the banks

Project Finance in China

• Legal framework of project finance
• Draft BOT Circular
• No government debt guarantee
• allow 100% foreign ownership of PRC power projects
• Security Law of 1995
• Foreign-Related Security Rules
• Foreign Exchange Control Regulations of 1996

New BOT Structure

• Local government can invite international developers to bid
• special purpose project company can be a wholly owned enterprise, equity joint venture or cooperative joint venture
• State guarantees the conversion of foreign exchange required for the project in terms of principle, interest and divided
• No government guarantees

Zhuhai Highway Co.

• In August 1996, Zhuhai Highway Co (Cayman registered subsidiary of Zhuhai municipal government) successfully launched a 2-tranche US 200-million revenue bond
• US$85 m, 10-year senior bonds (9.12%)
• US$115m, 12-year subordinated bonds (11.5%)
• First revenue bond in Asia
• First high-yield bond by Chinese entity
• Proceeds to finance infrastructure project

Three Gorges Dam Project

• The $24 billion project --spanning Yangtze River is on the 2nd phase of construction
• financial Package includes state and domestic sponsored funds (80%) and foreign funds (20%)
• China three Gorges Project Corporation is considering an International bond issue and listing its IPO on HK stock exchange and NYSE exchange to raise capital