Findings Report On A Harbor Project For Long-term Financing

F#. S# harbor on the westem coast of Xiaxnen island which was gOing tobuild two l0,0004on harbors was one of the main Proects of Xiamen in l999.The total investInent of the Proect was RMB3.6 billion, and it needed RMBl.2billion financing besides USDl5 million foreign gOvennnent loan the prOject hadgained. I took part in the investigation of the prOject for the long-term financing.My findings rePOrt was provided as a reference tO the decision maker for the loan.After investigaing and analyZing Xiamen POrt's Presen sitUaion, hinterland,handling caPacity, the prOject's natUral condition and financial benefit, we got thefollowing resuIts'This project which is next to Dongdu Port is conveniently connected to rail,road, and air transportation. Since during the last decade the volume of freighthandled of Xiamen Port was higher than the handling caPacity, new harbor wasneeded building to fi1l the gaP in handling capacity, this Proect was marketable.And its natUral condition was suitable to build a harbor. After calculation, we gotthe result that the net present value (NPV) was a positive number, the intemal rateof retum (IRR) was higher than the weighted-average cost of caPital (WACC), theinvestment payback period was l l.7 years, the discoamed payback period wasl 7.2 years, the payback period of foreign govenunent loan was 7.l years, and thepayback period of meB loan was 8.2 years. The sensitivity anaIysis showed thatthe project was sensitive to the sales. And the break-even analysis showed that theproject could bear risk to some extend. So we concluded that if the project couldbe cwhed out and rtm smoothly, it would produce enough cash flow to pay off theloan.At the same time, we noticed that the Iax was lower than the loan interest,and the WACC might go up if the investor could not satisfy the foreign%&JW R ffatghWfiffisgovenunent loan condition, and the policy of the Free Trade Zone where theprOject is located might easily affect the trade volume of the project.As the project loan was long term and subject to kinds of risks, it was safe forthe loaner to note the uncertainties, and we suggested the loaner to take suchmethods as noting Whther the investOr can satisfy the fOreign gOvenunent loancondition and extend the project's goods source from duty free goods tO both dutyfree and duty paid goods, the investor's caPacity tO nm the harbo, the nearbyWr's competition for the source of goods, and making sure the cash flow of theharbor will be used tO pay the loan, and raising a mOrtgag on the project.