spp closes oversubscribed, page-19

1) Jan 2010 (or even earlier) $720 capex... $1.5b in Q3 2015/2016 (6-7 yrs later) is NOT much increase in resource sector. Every project is cost-over run... CITIC budgeted $3.8B (I think)... costed $6B with 18 mths delay.

2) 10% interest rate is not a lot in business finance. Poorly rated companies will need to borrow at higher rates. Even Woolies with AA-rating issuing Notes at 3.5% above bank bill (total 8.5% interest rate) debt funding. Woolies have strong revenue. FMG is also selling corp bonds with high yield too. Woolies (AA-rate) is happy to pay investors 8.5% interest, probably because cheaper than from banks.

Woolies pay 8.5% interest investors.
FWL pays 10% interest to investors. Which company will you invest corporate bond with?

RBA cutting rates do not mean corporate debt rate will be cut too, because if RBA cut rate means economy is slowing & danger ahead. Banks often feel scared & INCREASE corporate interest instead of cutting.

3) Even if 100% cash-funding, if project cannot produce Return on Investment (ROI) more than 10% is NOT worth investing, because safer to investing in Woolies' Notes 8.5% rather than taking high risks. Ask any banker, if they will lend you money to buy a business with ROI <10%.

Another thing is exchange rate. Chinese yuen (assume FWL gets JV partner from China for MPI plant CAPEX) has been undervalued & will appreciate about 3%/yr. So by borrowing money in Yuen, will loss 3%/yr. This is not calculated in my previous calculation.

I used to work in corporate high-finance, credit assessment team for corporations borrowing money... get $350K+ salary & bonuses. Some clients borrow $200m+ & we were restricted buying shares in some companies.

I know all about loans, finance, return on investment. That job became too stressful, cannot afford to approve loans & get bad debt.

Some projects have IRR (Internal Rate of Return) >40%... look them up yourself. These projects still have trouble getting loans.