Fin Mozal Project

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

$3,342.3 (1,182.1) (1,653.8) (53.0) 453.3

$657.3 0.0 (551.3) 0.0 106.0

217.6 (26.5) 41.9 686.3

5.8 (47.1) 0.0 64.7

(121.4) 564.9

(23.0) 41.7

Turnover Subsidiary turnover Cost of sales Other operating cost Operating Income Investment income Net finance cost Other costs/income Profit before taxation Taxation Profit after taxation

Source: Note:

Company Annual Reports 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

$2,752.6 610.3 679.5 293.1 130.5 4,466.0

$872.9 0.0 563.7 0 187.0 1,623.6

1,820.2 1,834.8 300.1

1,455.1 52.6 0.0

433.2 578.8 0.0 852.4 1,864.4 5,819.5

184.1 145.1 63.7 0.0 392.9 1,900.7

Current liabilities Loans and payables Dividends payable Total current liabilities

1,287.6 65.9 1,353.5

262.6 14.4 277.1

Total employment

4,466.0

1,623.6

Capital Employed Shareholders’ interest Outside interests Long-term loans Long-term provisions Deferred taxation Total capital Employment of Capital Fixed assets Investments Other non-current assets Current assets Trading stock Amounts receivable Other Cash resources Total current assets Total assets

Source: Note:

Company Annual Reports Assumes 3.996 South African Rand equal $1.00 U.S.

Page 3

Exhibit4

Exhibit 4

Sources and Uses of Cash ($ millions) Uses of Cash

Sources of Cash

Total direct costs

$772

Total indirect costs Capital costs Contingency Price escalation Total Start-up costs Initial working capital Pre-completion interest Total Total Uses

Source:

226

75 90 165

49 153 202 1,365

Equity Gencor/Alusaf IDC Others Total Quasi-equity (subordinated debt) IFC Other development financial institutions Total Cash generation Export credit IDC--arranged Coface insured Loans IFC Other development financial institutions Total Senior Debt Total Sources

Company documents

Page 4

$125 125 250 500

37%

150

11

35

2

680 1,365

50 100

65 85

35

400 140 55 85

Exhibit6

Exhibit 6

Summary of Financial Projections in Constant 1997 Dollars ($ millions)

Total assets Current senior debt Net senior debt Subordinated debt (quasi-equity) Retained Earnings Share capital Total capital Senior debt/Total capital Current ratio DSCR (senior debt)a DSCR (total debt)a

Sales Cash flow (pre interest) Interest on senior debt Senior debt principal repayment Equity investmentb Dividends and subordinate debt interest Subordinated debt principal repayment Equity cash flow= irr= Source: a b

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

163

778

1,252

1,328

1,272

1,202

1,132

1,062

991

921

851

750

687

607

570

530

63

366

29 595

57 592

70 522

70 451

70 381

70 311

70 240

70 170

70 100

33 67

53 13

13 0

0 0

0 0

85

144

100 163

327 778

484 1,252

150 13 500 1,312

150 13 500 1,255

150 13 500 1,184

150 13 500 1,114

150 13 500 1,044

150 13 500 973

150 13 500 903

150 13 500 833

120 13 500 733

90 13 500 669

60 13 500 586

30 13 500 543

0 13 500 513

39%

47%

50%

49% 1.3 5.2 4.6

47% 1.4 1.7 1.6

44% 1.6 1.6 1.5

40% 1.8 1.7 1.6

36% 2.0 1.8 1.6

32% 2.1 1.9 1.7

27% 2.3 2.0 1.8

20% 2.5 2.0 1.7

14% 4.0 2.1 1.4

10% 3.2 4.3 2.2

2% 7.1 3.0 1.8

0% 12.8 12.1 3.4

0% 16.1 NA 5.2

394 170 12

429 189 52

429 190 47

429 190 41

429 186 35

429 187 29

429 187 23

429 171 17

429 170 11

429 171 7

429 170 4

429 170 1

429 170 0

29 22

57

70

70

70

70

70

70

70

33

53

13

0

63

51

57

63

66

72

79

68

73

79

106

125

140

30

30

30

30

30

103

109

136

155

170

100

-100 7%

312

-312

216

-216

41

51

57

63

Company documents, IFC analysis, and casewriter estimates.

DSCR = debt service coverage ratio = cash flow (principal + interest). The equity investment includes both equity and subordinated debt (quasi-equity) investments.

Page 5

66

72

79

68

Exhibit7

Exhibit 7

Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 6/97

Mozambican Macroeconomic Data (1980-1996)

Real GDP (1987 $) ($ mil.) 1,564 1,746 1,686 1,471 1,215 1,207 1,179 1,353 1,464 1,559 1,574 1,651 1,638 1,946 2,033 2,061 2,193

Real GNP per Capita (dollars) NA NA 189 160 120 140 170 140 110 90 90 90 80 90 90 80 90

CPI Inflation (percent) NA NA NA NA NA 47.8 12.2 175.8 55.0 42.1 49.2 33.3 45.1 42.3 63.1 54.4 44.6

National Exports ($ mil.) 399 460 400 298 214 184 192 176 188 200 229 309 304 312 355 407 479

Current Account Balance (as % of GDP)

Net Foreign Direct Investment ($ mil.)

-20.9 -17.8 -20.2 -18.2 -15.9 -11.7 -13.6 -51.2 -61.1 -63.8 -59.9 -51.1 -59.4 -58.5 -60.4 -46.3 -38.9

0 0 0 0 0 0 2 6 5 3 9 23 25 32 35 45 73

Total External Debt (as % of GDP) 0.0 0.0 0.0 3.6 61.6 104.4 115.0 303.4 344.8 327.4 323.3 327.4 413.7 369.4 394.3 395.4 332.1

Government Human Budget Development Balance Index (% GDP) (HDI)a -11.4 NA NA NA NA -18.4 -24.4 -22.9 -27.0 -24.8 -29.2 -24.9 -26.3 -22.2 -29.7 -20.8 -17.0

NA NA NA NA NA NA NA NA NA NA 0.239 0.155 0.246 0.261 0.281 0.281 NA

Institutional Investor Country Risk Ratingb NA NA NA NA NA NA NA NA NA 7.6 7.3 7.0 7.0 7.5 11.9 12.8 14.0

ICRG Risk Political NA NA NA NA NA 42.0 40.0 43.0 50.0 49.0 46.0 45.0 38.0 41.0 52.0 58.0 54.0 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 development—longevity, 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 country’s 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)

Page 6

Exhibit7

ICRG Risk Ratingsc Financial Economic NA NA NA NA NA 23.0 22.0 25.0 26.0 26.0 26.0 26.0 24.0 24.0 24.0 24.0 24.0 24.0

NA NA NA NA NA 6.0 6.0 4.5 7.0 8.0 13.5 14.5 15.5 19.5 17.5 13.0 19.5 20.0

Composite NA NA NA NA NA 35.5 34.0 36.3 41.5 41.5 42.8 42.8 38.8 42.3 46.8 47.5 48.8 50.0

nt Report,

Page 7

Exhibit8

Exhibit 8

Sub-Saharan African Macroeconomic Data (1996 unless otherwise noted)

Population (millions)

Country

Life Expectancy (Years)

United Nations HDI (1995) Ranka Score

Nominal GDP ($ mil.)

GDP per Capita (dollars)

1990-96 Real GDP Growth (percent)

Total Debt (% GDP)

ICRG Ratingsb Political Risk

Mozambique

18.0

45

0.281

166

1,715

90

5.5

355

50.0

Angola Botswana Burundi Congo (Zaire) Gabon Kenya Lesotho Madagascar Malawi Namibia Rwanda South Africa Swaziland Tanzania Uganda Zambia Zimbabwe

11.1 1.5 6.4 45.2 1.1 27.4 2.0 13.7 10.0 1.6 6.7 37.6 0.9 30.5 19.8 9.2 11.6

46 51 47 53 55 58 58 58 43 56 41 65 57 50 43 44 56

0.344 0.678 0.241 0.383 0.568 0.463 0.469 0.348 0.334 0.644 NA 0.717 0.597 0.358 0.340 0.378 0.507

156 97 170 143 120 137 134 153 161 107 NA 89 115 150 160 146 130

NA NA 899 19,437 5,704 9,272 NA 4,156 NA 3,026 1,330 126,301 1,069 NA 6,005 4,168 7,509

340 NA 140 NA 3,620 330 670 240 180 2,080 190 3,140 NA 130 290 430 620

-2.9 4.8 -2.6 -7.0 2.5 1.9 5.0 0.3 3.0 4.3 -8.7 0.8 2.1 3.4 6.9 0.0 1.0

37 15 103 142 76 58 70 113 134 NA 77 NA 22 136 52 120 42

50.0 80.5 NA 37.0 67.5 69.0 NA 58.5 63.0 78.5 NA 75.5 NA 63.0 57.5 61.5 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 country’s 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.

Page 8

Exhibit8

ICRG Ratingsb Composite Risk

March 1997 Rankc

Institutional Investor March March 1997 1990 Ratingd Ratingd

56.0

116

14.9

7.5

54.0 72.0 NA 36.0 58.0 68.0 NA 60.0 66.0 80.0 NA 75.0 NA 62.0 52.0 66.0 65.0

123 45 NA 131 92 81 NA NA 101 NA NA 51 74 105 107 113 71

12.5 49.5 NA 8.1 24.1 27.9 NA NA 19.8 NA NA 46.0 31.8 18.1 17.7 16.1 32.3

12.2 NA NA 8.3 29.8 29.7 NA NA 15.2 NA NA 34.0 18.7 10.1 5.4 9.0 27.8

Page 9

Exhibit9A

Exhibit 9A

Year

Summary of IFC Financial and Operating Statistics

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: Notes:

International Finance Corporation, Annual Reports. 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

Investments Held for IFC ($ millions) Equity Percent at Cost of Total Loans Total

Latin America and the Caribbean Asia Europe Central Asia, Middle East, and North Africa Sub-Saharan Africa Worldwide investments

3278.2 2284.5 1080.3 1003.2 594.4 82.0

773.2 606.6 335.7 246.3 188.1 87.3

4051.4 2891.0 1416.0 1249.5 782.5 169.3

38.4 27.4 13.4 11.8 7.4 1.6

8322.5

2237.7

10559.7

100

Total

Source:

International Finance Corporation: 1997 Investment Portfolio.

Page 11

Exhibit10A&B Exhibit 10A

Largest IFC Investments as of June 30, 1997 ($ millions)

Project Name

Country

Sector

1) 2) 3) 4) 5) 6) 7) 8) 9) 10)

Thailand Thailand India Argentina Brazil Venezuela Brazil Philippines Thailand Argentina

Oil Refining Chemicals Mining/Extraction Infrastructure Food/Agribusiness Infrastructure Food/Agribusiness Infrastructure Infrastructure Mining/Extraction

Star Petroleum Thai Petrochemicals Ispat Industries Aguas Argentinas Ceval Alimentos Compañía Teléfonos Sadia Concórdia Hopewell Power Mass Transit System Bridas S.A.P.I.C.

Exhibit 10B

94 97 92,95,97 96,96 93,96 96 94,95,97 93 97 93,96

Original Commitment Total in Total IFC Syndicate 100.0 100.0 102.8 85.0 90.0 75.0 80.0 70.0 69.7 80.0

350.0 400.0 85.0 307.5 130.0 185.6 222.0 11.0 0.0 100.0

Investments Held for IFC Equity at Cost Loans 100.0 100.0 85.5 75.1 68.6 75.0 64.0 60.0 59.8 42.1

0.0 0.0 5.8 7.0 10.0 0.0 10.0 10.0 9.8 25.0

Largest IFC Investments in Sub-Saharan Africa as of June 30, 1997 ($ millions)

Project Name

Country

Sector

1) 2) 4) 3) 5) 6) 7) 8) 9) 10)

Cameroon Congo Rep. Mali Côte d’Ivoire Kenya Mali Nigeria South Africa Nigeria Ghana

Mining/Extraction Mining/Extraction Mining/Extraction Mining/Extraction Timber/Paper Mining/Extraction Mining/Extraction Financial Services Hotels/Tourism Mining/Extraction

Pecten Cameroon Energy Haute Mer Mines d’Or Block CI-11 Panafrican Paper Minière de Syama Mobil/Nigeria SA Capital Growth Tourist Co. Goldfields Ltd.

255 other investments

Source:

Year of Investment

Year of Investment 92,96,97 96 95 93,95 70,90,96 94 91 96 94 90,92,97

Original Commitment Total in Total IFC Syndicate $74.5 46.8 39.8 38.7 69.0 28.1 75.0 20.0 17.5 27.0

177.9 25.0 25.0 0.0 4.0 0.0 95.0 0.0 0.0 18.5

49.3 43.9 35.0 0.0 30.0 26.7 22.5 0.0 15.0 13.6

0 2.9 4.8 38.7 4.5 1.4 0.0 20.0 2.5 3.0

Total

236.0 594.4

77.8 188.1

34 countries

International Finance Corporation: 1997 Investment Portfolio.

Page 12

Investments Held for IFC Equity at Cost Loans

Exhibit10A&B

ts Held for IFC Total 100.0 100.0 91.3 82.1 78.6 75.0 74.0 70.0 69.7 67.1

ts Held for IFC 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

Page 13

Exhibit11

Exhibit 11

IFC Investment Returns (1978-1995)

Region Africa Asia CAMENAe Europe Latin Americaf Average

Median Rates of Return (ROR) 347 IFC Projects Completed from 1978-1995 Financial RORa Economic RORb c d Ex Ante Ex Post Ex Antec Ex Postd 18.0% 19.0 20.5 19.4 20.0

9.0% 14.0 11.4 12.0 13.0

19.0% 20.0 24.0 19.9 20.0

10.0% 13.0 13.6 15.0 12.0

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 project’s 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 project’s 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.

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