TNAG-0950-FCO40-1169-Effect-of-nuclear-exports-to-China-on-Hong-Kong-Guangdong-nu-1980 — Page 70

*

J. HENRY SCHRODER WAGG & CO. LIMITED

GUANGDONG NUCLEAR POWER STATION

Financing Considerations

Introduction

The following financial assumptions have been made by China Light in the cash flow projections which are being used as a basis for discussion with KEC:

1.

2.

3.

4.

5.

Debt equity ratio: 10 to 1 with 25% p.a. dividend payable from after commissioning of the sets.

All loan finance to be provided from sources outside the PRC.

Interest on loans and dividends prior to commissioning to be rolled over and paid after commissioning.

Export credit to be available to finance 85% of the capital goods and services provided at fixed interest rate of 7% p.a. and repayable over 15 years from the mean commissioning date of two sets (i.e. 23 year loan).

The remainder of the loans to be from commercial sources at an average interest rate of 10% p.a. and repayable over seven years from mean commissioning (i.e. 15 year loan).

The main reasons for these assumptions are:

a)

b)

c)

the reluctance of China Light to put up more than token equity (KEC would be glad to see the equity substantially increased);

the unwillingness of PRC to provide any local loans; and

the resultant need for loans to be on particularly advantageous terms to balance the cash flows.

Security

It has been assumed that the full value of all the loans will be unconditionally guaranteed by the Bank of China. I understood from Bill Stones' staff that this might not be the interpretation of KEC who may only be thinking of 60% (the PRC shareholding). If a full guarantee is not available there could be some difficulty in arranging the loans in the amounts and on the terms assumed by China Light in the cash flows. There are however strong arguments for a 100% guarantee being sought from the Bank of China; not least that all the loan finance is to be provided by the U.K. Consortium and China Light is to provide the foreign exchange necessary for all the loans to be repaid by purchasing an equivalent amount in value

/...