Case 2 for Advanced Corporate Finance
“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 Maple holding the controlling interest.
Most power projects are project finance ventures. Project financing entails large stand-alone investments that are financed on the basis of their owns assets and cash flows. Project financing contains no substantial recourse to the assets of the equity holders themselves. Relating to project finance there are many conditions to deal with. To begin with many types of risks related to this project: construction risk, operating risk, credit risk and political risk.
The project starts with a construction phase of 4 years. The plan is to start the power flowing to Tianjin Plastic in the summer of 2000, as well as cash flows to Maple. The joint venture has a BOT arrangement, the joint venture will own and manage the plant for 20 years. The economic life of the project will therefor end in 2020.
Risks involved with project
During the construction phase Tianjin Plastics and Maple Energy will have to face the probability of loss associated with the construction phase. The bank required completion guarantees from both Tianjin Plastics and Maple Energy. All is not well with some of the major lenders, this could create a big risk during the construction phase of the power plant. This construction
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 Maple holding the controlling interest.
Most power projects are project finance ventures. Project financing entails large stand-alone investments that are financed on the basis of their owns assets and cash flows. Project financing contains no substantial recourse to the assets of the equity holders themselves. Relating to project finance there are many conditions to deal with. To begin with many types of risks related to this project: construction risk, operating risk, credit risk and political risk.
The project starts with a construction phase of 4 years. The plan is to start the power flowing to Tianjin Plastic in the summer of 2000, as well as cash flows to Maple. The joint venture has a BOT arrangement, the joint venture will own and manage the plant for 20 years. The economic life of the project will therefor end in 2020.
Risks involved with project
During the construction phase Tianjin Plastics and Maple Energy will have to face the probability of loss associated with the construction phase. The bank required completion guarantees from both Tianjin Plastics and Maple Energy. All is not well with some of the major lenders, this could create a big risk during the construction phase of the power plant. This construction