Chad Camerron Case Analysis

Topics: Finance, Bond, Risk Pages: 8 (404 words) Published: March 12, 2015
Chad Cameroon Pipeline

Q.1. How are the sponsors financing this
deal? How does the financing of the field

The fulldifferent
project was
planned
for $3.7b of
system
from
the financing
the
export system?
 Field System attributed to $1.5b, and the
Export System for $2.2b


Field System
 300

oil wells

 Financed

by TOTCO

 Corporate


Finance to be applied

Export System
 1070

km pipeline with monitoring mechanism

Q.2. What is the world bank/ifc's role in
this deal? Are they likely to be
successful?


IFC provided $100m loan and upto $300m in
syndicated loan to TOTCO and COTCO



Helped $900m of financing from Export credit
agencies



$400 bond issue from intl capital market



Commercial lenders would have extended support
only with involvement from World Bank



Handled the Revenue management program

Q.3. Analyse the risk and returns to Chad, Cameroon
and the Private Sponsors? How were the returns
calculated? Are the risks and returns fair from each
party's perspective?




Chad :


High risk – Environmental impact, Resistance from people/residents



Political impact



Exploration of oil doesnt always come with development



Expected Returns - $1.8b


Income taxes (16%)



Royalties



Dividends

Cameroon


High risk - Environmental impact, Resistance from people/residents, Ground water contamination



Returns - $535m


Transit

Required Returns
CAPM model to calculate Return On Assets

Given Asset B=0.6; ERP=6%; Risk free rate =
6%; debt/equity ratio = 60%

CAPM r=r(tax free)* B*ERP
Equity B = 0.6 * (1+0.6)=0.96
Required Retun On Equity = 6+0.96*6=11.76%
Required Return On Asset = 6+0.6*6 =9.6%

Q.4. Will the Revenue Management Plan work?
Are there aspects of the plan that you think
should be changed?


Concept – Optimise product availability, Max
(Revenue Growth)



Sell right product to right consumer at best
price



Components
 Poverty

alleviation

 Transparency
 Participation


reg use of revenue

from -govt, public, private sector

NOT WORK due to :
 Does

not address to social factors, political

Would you approve the deal as a world bank/ifc
board member?


YES, because for social reasons as else the project would not get started (Commercial lenders would have extended
support only with involvement from World Bank)



Serious concerns were studied and corrected



Availability of sound Change Management Plan



Provision of bond does away with need for equity financing
from either govt



Possibility of FDI



No market risk, and ability to control was high



PF structure allowed use of higher leverage (higher tax
shields and reduced equity exposure)

Thank You

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