TNAG-1648-FCO40-2295-Financial-insurance-and-investment-companies-in-Hong-Kong-In-1987 — Page 17

JUN.11 '87 10:58 IMF WASH DC RAPICOM6300 477-7491

-10-

P.018

5.01

V. PROJECTED PERFORMANCE AND BENEFITS

Detailed financial forecasts and the assumptions on which they are based are attached in Annex 1. The results of those forecasts are

summarized below:

1987 1988

1989 1990 USS Millions

1991

1992

Investment Portfolio

Outstanding

0

16

24

32

40

Total Revenues

N.A.

1.1

1.2

3.0

5.1

7.4

Net Profit

N.A.

0.3

0.7

2.4

4.0

5.5

Total Project Investments External Borrowings

-0-

8.0

16.0

24.0

32.0

40.0

-0-

-0-

-0-

2.2

8.2

13.4

Subordinated Loan Stock Net Worth

20.0 19.9

19.5

18.3

16.3

13.6

0.25 0.53

1.2

3.6

7.6

13.1

5.02

(i)

The principal assumptions behind these forecasts are as follows!

CIC will make US$8.0 million of new investments every year. (In the early years it is assumed that CIC will invest its surplus funds in short term investments yielding an average return of 7% p.a.)

(11) The average return on CIC's project investments will be 20% p.a.

(111) In addition to its return on actual cash investments, CIC will

have additional income from "carried interest" on investments (usually as compensation for CIC's efforts in promoting and structuring projects), cash fees and income from compensation trade equal to 50% of its lučome from direct investments.

(iv) CIC'= default rate (i.e. non-accruals and losses on investment)

will be 5% of the total investments.

Returns to IFC

5.03 Naturally, in the absence of actual operating experience, any financial forecasts are necessarily based on a financial model derived from the assumptions and targets used by the sponsors. We have reviewed these assumptions in the light of our own knowledge of joint venture operations in China, in general, and the actual experience of joint ventures involving Hong Kong partners, in particular, and we regard the assumption as realistic and achievable. In the final analysis, however, the success of CIC will depend on the ability of the Company's management and sponsors to identify and participate in projects which meet or exceed the investment targets. believe that JF is well placed and well qualified to be able to develop such a quality portfolio.

We