Copyright

Financing the Mozal Project

Harvard Business School Case 9-200-005
Case Software 2-200-702
Copyright 1999 by the President and Fellows of Harvard College
This case was prepared by Research Associate Fuaad A. Qureshi, under the supervision of Professor
Benjamin Esty, as the basis for class discussion rather than to illustrate either effective or ineffective
handling of an administrative situation.
Page 1
Exhibit1A
Exhibit 1A Gencor and Alusaf Income Statements on June 30, 1996 ($US millions)
Gencor Group Alusaf Group
Turnover $3,342.3 $657.3
Subsidiary turnover (1,182.1) 0.0
Cost of sales (1,653.8) (551.3)
Other operating cost (53.0) 0.0
Operating Income 453.3 106.0
Investment income 217.6 5.8
Net finance cost (26.5) (47.1)
Other costs/income 41.9 0.0
Profit before taxation 686.3 64.7
Taxation (121.4) (23.0)
Profit after taxation 564.9 41.7
Source: Company Annual Reports
Note: Assumes 3.996 South African Rand equal $1.00 U.S.
Page 2
Exhibit1B
Exhibit 1B Gencor and Alusaf Balance Sheets on June 30, 1996 ($US millions)
Gencor Group Alusaf Group
Capital Employed
Shareholders interest $2,752.6 $872.9
Outside interests 610.3 0.0
Long-term loans 679.5 563.7
Long-term provisions 293.1 0
Deferred taxation 130.5 187.0
Total capital 4,466.0 1,623.6
Employment of Capital
Fixed assets 1,820.2 1,455.1
Investments 1,834.8 52.6
Other non-current assets 300.1 0.0
Current assets
Trading stock 433.2 184.1
Amounts receivable 578.8 145.1
Other 0.0 63.7
Cash resources 852.4 0.0
Total current assets 1,864.4 392.9
Total assets 5,819.5 1,900.7
Current liabilities
Loans and payables 1,287.6 262.6
Dividends payable 65.9 14.4
Total current liabilities 1,353.5 277.1
Total employment 4,466.0 1,623.6
Source: Company Annual Reports
Note: Assumes 3.996 South African Rand equal $1.00 U.S.
Page 3
Exhibit4
Exhibit 4 Sources and Uses of Cash ($ millions)
Total direct costs $772 Equity
Gencor/Alusaf $125
Total indirect costs 226 IDC 125
Others 250
Capital costs Total 500 37%
Contingency 75
Price escalation 90 Quasi-equity (subordinated debt)
Total 165 IFC 65
Other development
Start-up costs financial institutions 85
Initial working capital 49 Total 150 11
Pre-completion interest 153
Total 202 Cash generation 35 35 2
Total Uses 1,365 Export credit
IDC--arranged 400
Coface insured 140
Loans
IFC 55
Other development
financial institutions 85
Total Senior Debt 680 50
Total Sources 1,365 100
Source: Company documents
Uses of Cash Sources of Cash
Page 4
Exhibit6
Exhibit 6 Summary of Financial Projections in Constant 1997 Dollars ($ millions)
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Total assets 163 778 1,252 1,328 1,272 1,202 1,132 1,062 991 921 851 750 687 607 570 530
Current senior debt 29 57 70 70 70 70 70 70 70 33 53 13 0 0
Net senior debt 63 366 595 592 522 451 381 311 240 170 100 67 13 0 0 0
Subordinated debt
(quasi-equity) 85 144 150 150 150 150 150 150 150 150 120 90 60 30 0
Retained Earnings 13 13 13 13 13 13 13 13 13 13 13 13 13
Share capital 100 327 484 500 500 500 500 500 500 500 500 500 500 500 500 500
Total capital 163 778 1,252 1,312 1,255 1,184 1,114 1,044 973 903 833 733 669 586 543 513
Senior debt/Total capital 39% 47% 50% 49% 47% 44% 40% 36% 32% 27% 20% 14% 10% 2% 0% 0%
Current ratio 1.3 1.4 1.6 1.8 2.0 2.1 2.3 2.5 4.0 3.2 7.1 12.8 16.1
DSCR (senior debt)
a
5.2 1.7 1.6 1.7 1.8 1.9 2.0 2.0 2.1 4.3 3.0 12.1 NA
DSCR (total debt)
a
4.6 1.6 1.5 1.6 1.6 1.7 1.8 1.7 1.4 2.2 1.8 3.4 5.2
Sales 394 429 429 429 429 429 429 429 429 429 429 429 429
Cash flow (pre interest) 170 189 190 190 186 187 187 171 170 171 170 170 170
Interest on senior debt 12 52 47 41 35 29 23 17 11 7 4 1 0
Senior debt principal
repayment 29 57 70 70 70 70 70 70 70 33 53 13 0
Equity investment
b
100 312 216 22
Dividends and subordinate
debt interest 63 51 57 63 66 72 79 68 73 79 106 125 140
Subordinated debt
principal repayment 30 30 30 30 30
Equity cash flow= -100 -312 -216 41 51 57 63 66 72 79 68 103 109 136 155 170
irr= 7%
Source: Company documents, IFC analysis, and casewriter estimates.
a
DSCR = debt service coverage ratio = cash flow (principal + interest).
b
The equity investment includes both equity and subordinated debt (quasi-equity) investments.
Page 5
Exhibit7
Exhibit 7 Mozambican Macroeconomic Data (1980-1996)
Real Net Institutional
Real GNP Current Foreign Total Government Human Investor
GDP per CPI National Account Direct External Budget Development Country
(1987 $) Capita Inflation Exports Balance (as Investment Debt (as % Balance Index Risk
Year ($ mil.) (dollars) (percent) ($ mil.) % of GDP) ($ mil.) of GDP) (% GDP) (HDI)
a
Rating
b
Political
1980 1,564 NA NA 399 -20.9 0 0.0 -11.4 NA NA NA
1981 1,746 NA NA 460 -17.8 0 0.0 NA NA NA NA
1982 1,686 189 NA 400 -20.2 0 0.0 NA NA NA NA
1983 1,471 160 NA 298 -18.2 0 3.6 NA NA NA NA
1984 1,215 120 NA 214 -15.9 0 61.6 NA NA NA NA
1985 1,207 140 47.8 184 -11.7 0 104.4 -18.4 NA NA 42.0
1986 1,179 170 12.2 192 -13.6 2 115.0 -24.4 NA NA 40.0
1987 1,353 140 175.8 176 -51.2 6 303.4 -22.9 NA NA 43.0
1988 1,464 110 55.0 188 -61.1 5 344.8 -27.0 NA NA 50.0
1989 1,559 90 42.1 200 -63.8 3 327.4 -24.8 NA 7.6 49.0
1990 1,574 90 49.2 229 -59.9 9 323.3 -29.2 0.239 7.3 46.0
1991 1,651 90 33.3 309 -51.1 23 327.4 -24.9 0.155 7.0 45.0
1992 1,638 80 45.1 304 -59.4 25 413.7 -26.3 0.246 7.0 38.0
1993 1,946 90 42.3 312 -58.5 32 369.4 -22.2 0.261 7.5 41.0
1994 2,033 90 63.1 355 -60.4 35 394.3 -29.7 0.281 11.9 52.0
1995 2,061 80 54.4 407 -46.3 45 395.4 -20.8 0.281 12.8 58.0
1996 2,193 90 44.6 479 -38.9 73 332.1 -17.0 NA 14.0 54.0
6/97 56.0
Sources: African Development Indicators (various years), World Bank, World Economic Outlook, International Monetary Fund (various years), Human Development Report,
UNDP (various years), Institutional Investor International Edition, and International Country Risk Guide.
a
The HDI is an index used by the United Nations Development Program (UNDP) to measure the overall achievements in a country in three basic dimensions of human
developmentlongevity, knowledge and a decent standard of living.
b
The Institutional Investor rating is based on a survey of 75-100 international bankers who were asked to grade each country on a scale of 1 (very high chance of default)
to 100 (least chance of default).
c
The International Country Risk Guide (ICRG) provides a rating composed of 22 variables in three subcategories or risk: political (100 points), financial (50 points),
and economic (50 points). ICRG provides ratings for 140 countries on a monthly basis where higher numbers indicate lower risk.
The political risk rating measure a countrys political stability.
The financial risk rating measures a country's ability to finance its official, commercial, and trade debt obligations.
The economic risk rating measures the country's current economic strengths and weaknesses.
The composite risk rating equals the sum of the individual ratings divided by two: 0.0-49.5 (very high risk), 80.0 to 100.0 (very low risk)
ICRG Risk Ratings
c
Page 6
Exhibit7
Financial Economic Composite
NA NA NA
NA NA NA
NA NA NA
NA NA NA
NA NA NA
23.0 6.0 35.5
22.0 6.0 34.0
25.0 4.5 36.3
26.0 7.0 41.5
26.0 8.0 41.5
26.0 13.5 42.8
26.0 14.5 42.8
24.0 15.5 38.8
24.0 19.5 42.3
24.0 17.5 46.8
24.0 13.0 47.5
24.0 19.5 48.8
24.0 20.0 50.0
African Development Indicators (various years), World Bank, World Economic Outlook, International Monetary Fund (various years), Human Development Report,
ICRG Risk Ratings
c
Page 7
Exhibit8
Exhibit 8 Sub-Saharan African Macroeconomic Data (1996 unless otherwise noted)
1990-96
GDP Real
Life Nominal per GDP Total
Population Expectancy GDP Capita Growth Debt Political
Country (millions) (Years) Score Rank
a
($ mil.) (dollars) (percent) (% GDP) Risk
Mozambique 18.0 45 0.281 166 1,715 90 5.5 355 50.0
Angola 11.1 46 0.344 156 NA 340 -2.9 37 50.0
Botswana 1.5 51 0.678 97 NA NA 4.8 15 80.5
Burundi 6.4 47 0.241 170 899 140 -2.6 103 NA
Congo (Zaire) 45.2 53 0.383 143 19,437 NA -7.0 142 37.0
Gabon 1.1 55 0.568 120 5,704 3,620 2.5 76 67.5
Kenya 27.4 58 0.463 137 9,272 330 1.9 58 69.0
Lesotho 2.0 58 0.469 134 NA 670 5.0 70 NA
Madagascar 13.7 58 0.348 153 4,156 240 0.3 113 58.5
Malawi 10.0 43 0.334 161 NA 180 3.0 134 63.0
Namibia 1.6 56 0.644 107 3,026 2,080 4.3 NA 78.5
Rwanda 6.7 41 NA NA 1,330 190 -8.7 77 NA
South Africa 37.6 65 0.717 89 126,301 3,140 0.8 NA 75.5
Swaziland 0.9 57 0.597 115 1,069 NA 2.1 22 NA
Tanzania 30.5 50 0.358 150 NA 130 3.4 136 63.0
Uganda 19.8 43 0.340 160 6,005 290 6.9 52 57.5
Zambia 9.2 44 0.378 146 4,168 430 0.0 120 61.5
Zimbabwe 11.6 56 0.507 130 7,509 620 1.0 42 61.0
Sources: African Development Indicators (various years), World Bank, United Nations, and Institutional Investor International Edition.
a
The United Nations Human Development Index (HDI) is a rating of human development across 174 countries. The score ranges
from 0 (low) to 1.00 (high); the rank ranges from 1 (high) to 174 (low).
b
The International Country Risk Guide (ICRG) provides a rating composed of 22 variables in three subcategories of risk: political
(100 points), financial (50 points), and economic (50 points). ICRG provides ratings for 140 countries on a monthly basis.
The political risk rating measure a countrys political stability.
The composite risk rating equals the sum of the individual ratings divided by two: 0.0-49.5 (very high risk), 80.0 to 100.0 (very low risk).
c
The Institutional Investor rank is out of 135 rated countries (low numbers represent less risky countries).
d
The Institutional Investor rating is based on a survey of 75-100 international bankers who were asked to grade each country on a scale of
1 to 100, with 100 representing the least chance of default.
HDI (1995)
United Nations ICRG Ratings
b
Page 8
Exhibit8
March March March
Composite 1997 1997 1990
Risk Rank
c
Rating
d
Rating
d
56.0 116 14.9 7.5
54.0 123 12.5 12.2
72.0 45 49.5 NA
NA NA NA NA
36.0 131 8.1 8.3
58.0 92 24.1 29.8
68.0 81 27.9 29.7
NA NA NA NA
60.0 NA NA NA
66.0 101 19.8 15.2
80.0 NA NA NA
NA NA NA NA
75.0 51 46.0 34.0
NA 74 31.8 18.7
62.0 105 18.1 10.1
52.0 107 17.7 5.4
66.0 113 16.1 9.0
65.0 71 32.3 27.8
ICRG Ratings
b
Institutional Investor
Page 9
Exhibit9A
Exhibit 9A Summary of IFC Financial and Operating Statistics
Year
Number of
Projects
Approved
Total
Approved
Financing
for Own
Account
Total
Committed
Portfolio for
Own Account
Number of
Firms in
Committed
Portfolio
Non-Accrual
Loans as
% of Total
Principal in
Arrears as %
of Total
Net Income
(millions)
Total Assets
(millions)
1980 55 $681 $402 288 n/a n/a $20.70 $908
1981 56 811 749 314 n/a n/a 19.5 1,085
1982 65 612 1,049 333 n/a n/a 21.6 1,233
1983 58 845 1,267 341 n/a n/a 23.0 1,314
1984 62 696 1,622 349 n/a n/a 26.3 1,390
1985 75 937 1,979 366 n/a n/a 28.3 1,673
1986 85 1,156 2,518 377 18.0% 4.1% 25.4 2,236
1987 92 920 3,260 404 15.8 6.1 53.8 2,814
1988 95 1,039 3,374 454 11.1 5.0 100.6 3,427
1989 92 1,292 4,045 468 7.5 3.2 196.5 4,006
1990 122 1,505 4,752 495 5.2 2.5 157.0 5,606
1991 152 1,540 5,494 618 5.6 2.3 165.9 6,648
1992 167 1,773 6,423 703 6.7 3.7 180.2 8,133
1993 185 2,133 7,132 798 8.3 4.3 141.7 8,913
1994 231 2,463 7,893 868 7.2 4.0 258.2 14,723
1995 213 2,877 9,461 939 6.5 3.9 188.0 18,228
1996 264 3,248 9,844 985 5.6 3.3 345.8 22,640
1997 276 3,317 10,521 1,046 4.9 2.7 431.9 28,975
Source: International Finance Corporation, Annual Reports.
Notes: Non-accrual means the loans are not accruing interest in a timely fashion.
Principal in arrears means the amount of principal not paid when it was due.
Page 10
Exhibit9B
Exhibit 9B IFC Investments by Region as of June 30, 1997 ($ millions)
Region Loans
Equity
at Cost Total
Percent
of Total
Latin America and the Caribbean 3278.2 773.2 4051.4 38.4
Asia 2284.5 606.6 2891.0 27.4
Europe 1080.3 335.7 1416.0 13.4
Central Asia, Middle East, and North Africa 1003.2 246.3 1249.5 11.8
Sub-Saharan Africa 594.4 188.1 782.5 7.4
Worldwide investments 82.0 87.3 169.3 1.6
Total 8322.5 2237.7 10559.7 100
Source: International Finance Corporation: 1997 Investment Portfolio.
Investments Held for IFC ($ millions)
Page 11
Exhibit10A&B
Exhibit 10A Largest IFC Investments as of June 30, 1997 ($ millions)
Project Name Country Sector
Year of
Investment Total IFC
Total in
Syndicate Loans
Equity at
Cost
1) Star Petroleum Thailand Oil Refining 94 100.0 350.0 100.0 0.0
2) Thai Petrochemicals Thailand Chemicals 97 100.0 400.0 100.0 0.0
3) Ispat Industries India Mining/Extraction 92,95,97 102.8 85.0 85.5 5.8
4) Aguas Argentinas Argentina Infrastructure 96,96 85.0 307.5 75.1 7.0
5) Ceval Alimentos Brazil Food/Agribusiness 93,96 90.0 130.0 68.6 10.0
6) Compaa Telfonos Venezuela Infrastructure 96 75.0 185.6 75.0 0.0
7) Sadia Concrdia Brazil Food/Agribusiness 94,95,97 80.0 222.0 64.0 10.0
8) Hopewell Power Philippines Infrastructure 93 70.0 11.0 60.0 10.0
9) Mass Transit System Thailand Infrastructure 97 69.7 0.0 59.8 9.8
10) Bridas S.A.P.I.C. Argentina Mining/Extraction 93,96 80.0 100.0 42.1 25.0
Exhibit 10B Largest IFC Investments in Sub-Saharan Africa as of June 30, 1997 ($ millions)
Project Name Country Sector
Year of
Investment Total IFC
Total in
Syndicate Loans
Equity at
Cost
1) Pecten Cameroon Cameroon Mining/Extraction 92,96,97 $74.5 177.9 49.3 0
2) Energy Haute Mer Congo Rep. Mining/Extraction 96 46.8 25.0 43.9 2.9
4) Mines dOr Mali Mining/Extraction 95 39.8 25.0 35.0 4.8
3) Block CI-11 Cte dIvoire Mining/Extraction 93,95 38.7 0.0 0.0 38.7
5) Panafrican Paper Kenya Timber/Paper 70,90,96 69.0 4.0 30.0 4.5
6) Minire de Syama Mali Mining/Extraction 94 28.1 0.0 26.7 1.4
7) Mobil/Nigeria Nigeria Mining/Extraction 91 75.0 95.0 22.5 0.0
8) SA Capital Growth South Africa Financial Services 96 20.0 0.0 0.0 20.0
9) Tourist Co. Nigeria Hotels/Tourism 94 17.5 0.0 15.0 2.5
10) Goldfields Ltd. Ghana Mining/Extraction 90,92,97 27.0 18.5 13.6 3.0
255 other investments 34 countries 236.0 77.8
Total 594.4 188.1
Source: International Finance Corporation: 1997 Investment Portfolio.
Original Commitment Investments Held for IFC
Original Commitment Investments Held for IFC
Page 12
Exhibit10A&B
Total
100.0
100.0
91.3
82.1
78.6
75.0
74.0
70.0
69.7
67.1
Total
49.3
46.8
39.8
38.7
34.5
28.1
22.5
20.0
17.5
16.6
313.8
782.5
Investments Held for IFC
Investments Held for IFC
Page 13
Exhibit11
Exhibit 11 IFC Investment Returns (1978-1995)
Region Ex Ante
c
Ex Post
d
Ex Ante
c
Ex Post
d
Africa 18.0% 9.0% 19.0% 10.0%
Asia 19.0 14.0 20.0 13.0
CAMENA
e
20.5 11.4 24.0 13.6
Europe 19.4 12.0 19.9 15.0
Latin America
f
20.0 13.0 20.0 12.0
Average 19.0 12.0 20.0 12.0
Source: IFC Economics Department, cited in the Annex to Private Sector and Development: Five
Case Studies, The World Bank, March 1, 1997.
Notes and definitions:
a
Financial rate of return (ROR) is the projects internal rate of return based on constant price
projections of pre-interest, after-tax cash flows, less project costs.
b
Economic rate of return (ROR) is the projects internal rate of return based on constant price
projections of pre-interest, pre-tax cash flows adjusted for economic distortions and transfer
payments, less project costs.
c
Ex ante estimates were made prior to project implementation.
d
Ex post estimates were made during an Investment Assessment Report which is typically done
several years after project implementation.
e
CAMENA = Central Asia, Middle East, and North Africa.
f
Includes the Caribbean.
Financial ROR
a
Economic ROR
b
347 IFC Projects Completed from 1978-1995
Median Rates of Return (ROR)
Page 14