Focus media bank loans
Focus Media has accounts that suggest it is massively cash generative. According to their accounts they are sitting on over $500 million in cash - in this case all in Renminbi.
They also have expanding bank loans - now over USD200 million. These loans are made in US dollars backed by LOCs issued by a Chinese bank.
I have heard several (contradictory) theories for why these transactions were made in this manner.
I figured if I put this disclosure up readers might propose even more contradictory theories in their comments.
At least that is what I am looking for.
John...
14. Bank Loans
NotesDecember 31,
2011Short -term revolving loan a)$100,000,000 Long -term revolving loan b)71,000,000
Total $171,000,000
Additional available long -term loan facilities b)$29,000,000
a)The short-term revolving loan is denominated in U.S. Dollars, was obtained from a large commercial institution outside of the PRC (“Bank A”), and is secured by a stand-by letter of credit issued by PRC based financial institution (“Bank B”). The stand-by letter of credit is secured by short-term deposits of RMB628,030,000 (equivalent to $99,673,063), which is recorded as restricted cash on the Group’s balance sheet. The Group paid RMB 4,095,000 (equivalent to $649,907) to Bank B to issue the stand-by letter of credit to Bank A. The short-term revolving loan bears interest, which is payable monthly, at the rate of two-week LIBOR plus 2.1% per annum. The weighted average interest rate of this loan for the year ended December 31, 2011 was approximately 2.4%. The short-term loan is payable in November 2012.b)The long -term revolving loan is denominated in U.S. Dollars, was obtained from Bank A, and is secured by a stand-by letter of credit issued by Bank B. The stand-by letter of credit is secured by restricted long-term deposits of RMB 628,030,000 (equivalent to $99,673,063) deposited in Bank B, The deposit is recorded as restricted cash on the Group’s balance sheet. The Group paid RMB 3,965,000 (equivalent to $629,275) to Bank B to issue the stand-by letter of credit required by Bank A, The costs incurred in connection with the stand-by letter of credit are being amortized to interest expense over the term of the loan. The loan bears interest, which is payable monthly, at the rate of two-week LIBOR plus 2.1%, 2.4% and 2.7% per annum for each of the twelve months ending December 8, 2012, 2013 and 2014, respectively. The weighted average interest rate of this loan for the year ended December 31, 2011 was about 2.4%. The principal of the loan is payable in two installments of $17,750,000 and $53,250,000, which are due in December 2013 and December 2014, respectively.Neither the short-term or long-term bank loan contains financial covenants.
Source: here.