JUN. 11
הסי
10:50 INг WASII DO RAPICOMG300 477 7421
-11-
r.010
5.04
Based on the financial forecasts and the above assumptions on which they are based, the Internal Rate of Return for the project over twelve years is 19.2%. The return on IFC's investment, including Subordinated Loan Stock, shares in CIC and shares in CMC, is slightly lower (18.7%) due to the fact that the IFC participation in CMC (1.e. 10%) is somewhat lower than its share in the total capital of CIC (i... approximately 15%). In addition to the direct financial returns that may result from IFC's participation, CIC offers the potential for indirect and unquantifiable benefits in terms of contacts with important Hong Kong businesses and introductions to larger projects which would be beyond the scope for CIC to participate.
VI. RISKS AND ISSUES
Sensitivities and Risks
6.01
The sensitivity of project returns to the foreseable risks and upside potentials are summarized in the table below:
Base Case Base Case Upside Assumptions IRR Assumptions
Upside Downside Downside
IRR Assumptions IRR
% Average Return on Investment
20%
19.Z%
25%
23.5%
10%
2.8%
* Carried Interest and Fees
50%
19.2%
100%
25.4%
25%
15.8%
to actual investment income 1/
Rate of Annual Investment
(US$millions}
19.2%
12
22.9%
14.4%
% Non-Performing Accounts
5%
19.2%
0%
20.8%
10%
17.9%
* Recovery of Net Book Value
of termination
100%
19.2%
150%
20.7%
50%
17.5%
1/ "Carried Interest and Faes" includes any profit participation or other consideration paid to CIC not directly related to the Company's own investment. It also includes all other non-investment related sources of income, most notably, compensation trade.
6.02
Obviously, the project's own IRR is most sensitive to the rate of return earned on its own portfolio investments. The project's sponsors consider the base case assumption of 20% return on investment to be conservative and suggest that most Hong Kong investments in the PRC are actually doing better than this. Because of its own good connections in the Hong Kong business community, its proximity to many of the projects and the relatively small number of investments that the Company needs to identify in order to meet its targets, we are confident that a 20% return on investments is achievable. It should also be noted that CIC cannot be regarded as a normal venture capital company. The Company is not expecting to invest in new or high risk technologies. A significant proportion of CIC investment may be in expansion projects involving far less risk than typical venture capital investments.