Case 2 for Advanced Corporate Finance

1474 Words6 Pages
“Case: Tianjin Plastics”
Vrije Universiteit Amsterdam
Course Advanced Corporate Finance
Students Fatin Azear
Jos Kusters
Maaike van der Steen

Case: Tianjin Plastics
This assignment considers the case of Tianjin Plastics. Pat Johnson, project finance analyst for Maple Energy (U.S.-based international power plant developer), has to make a recommendation regarding the financial viability of the Tianjin Plastics power plant project in China. The recommendation would require a final evaluation of all financing options, as well as reaching contract closure with his joint venture partners, Tianjin Plastics and Chinese Ministry of Power Industry (MOPI). The joint venture would be split 49% Maple, 46% Tianjin Plastics, 5% MOPI, with
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Also the tax holliday for the first 6 years and the free coal feedstock for the life of the power plant lowers this risk. A very critical in this project is that the Chinese government does not allow registered capital, the equity capital initially invested under the agreements of the project, to be repatriated. This means that Maple can only return profits and dividend to the parent company. If there aren’t much profits to be expected, Maple faces the risk of not getting a healthy return. The only potential source of earnings from the Tianjin Plastic project are the 49% share of the net profits and dividends.quantifyen.
The expected return (IRR) of the project for Maple Energy is 22%.
Summary assumptions WACC
Maple 's cost of equity (hurdle rate)
18,00%
Equity
16,50
E+D
110,00
Debt
93,50
Rd (weighted cost of capital)
8,26%
Taxrate in first 6 years
0%
Taxrate after first 6 years
40%
WACC (first 6 years)
9,72%
WACC (after 6 years)
6,91%
Rd borrow locally
13,00%
WACC borrow locally (first 6 years)
13,75%
WACC borrow locally (after 6 years)
9,33%

Scenario base case:

Since the government restricted the registered capital, Maple would not be able to get the equity capital initially invested under the agreement of the project to be repatriated. Since Maple had always been able to repatriate a large part if not all of its capital invested in a power plant project, they started looking for a solution.
The
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