An international mining company (“IMC” or “Borrower”) has just completed building a nickel mine in an emerging Asian country (“Host Country”) with past record of political instability. Nickel is a metal that has multiple industrial and consumer application. It is traded on the London Metal Exchange and it is traded in USD (“United States Dollar”). The nickel processing equipment will be imported from an OECD (The Organisation for Economic Co-operation and Development) country that has an active export credit program. The processed nickel will be exported fully overseas to earn foreign currency earnings. Total investment of the nickel mine was US$65 million and funded by US$25 million equity and a US$40 million project finance loan with a 5 year repayment period.

Upon commercial operation, nickel prices collapsed due to the worsening global trade disputes and further aggravated by depressed demand for the nickel metal. IMC negotiated with the project finance lenders to extend the loan tenure beyond 5 years but the lenders insisted on maintaining the loan tenure and IMC to contribute US$20 million additional equity to reduce the initial project finance loan amount. The remaining project finance loan amount is to be repaid in five equal yearly installments (“Loan Restructuring”). The interest rate on the project finance loan is 5% per annum. Cash flow available for debt service is US$25 million per year.

Determine the Sponsors’ equity Net Present Value after the Loan Restructuring. Use discount rate of 10% per annum. Show your computation.

Answer rating: 100% (QA)

Sponsors Equity Net Present Value After Loan Restructuring Step 1 Calculate Annual Loan Payments Ori... View the full answer