COMMERCIAL IN CONFIDENCE
GUANGDONG NUCLEAR POWER STATION
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Definition of Shareholders financial Responsibilities
Given the considerable risks of GNPS project, both political and financial, we do not consider that an investment in HKNIC would appeal to a conventional UK portfolio investor. Schroders and Chartered would be better placed to advise on whether investors in Hong Kong would, for their own reasons, be prepared to invest in HKNIC. However, such investors would almost certainly only be prepared to do so if their potential loss was limited to their equity contributions and if the expected total return, compared to alternative investment opportunities, provided adequate compensation for the relative riskiness of the investment. The required total return would depend, inter alia, on an assessment of the projected cash flows of the project and the likely impact on these cash flows of cost overruns and other political and financial risks.
Parties with a direct or indirect interest in the project might also be willing to participate as shareholders. However in evaluating their investment these parties, would have regard to the commercial and other benefits that they would derive from the project, and would not necessarily look for the same return or security of return as the conventional portfolio investor.
In our view it is most unlikely that any investor would be prepared to invest in HANIC if:
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there was a strong likelihood that they would lose their capital; or
b) they were also responsible for meeting any unforeseen costs (overruns etc.) and for providing a 40% guarantee to the lenders.
Experience of other Nuclear Projects throughout the world shows that overrun costs are likely to be very substantial and certainly far greater than the equity proposed for this project.
Because of these risks it is most unlikely that HKNIC would be willing to provide anything more that the equity capital; furthermore investors are only likely to participate in the equity if they can be persuaded that there are other sources to meet any unforeseen costs and the guarantees.
China Light in its negotiations with GPC on the financial responsibilities of the shareholders should therefore ensure
that:
=) HKNIC's financial responsibilities are strictly
limited to the provision of a fixed amount of capital;