Narrative
Full Description
Project narrative
On November 14, 2016, it was announced that China Development Bank Financial Leasing Co., Ltd. (CDB Leasing) had entered into a $473 million USD ($626 million AUD) finance lease facility agreement with Fortescue Metals Group Limited (FMG) to finance the acquisition of eight Very Large Ore Carriers (VLOCs) under construction in China. The facility had a maturity of 12 years with an option to extend for an additional three years, an early repayment option at FMG's discretion beginning from the fourth year onwards, draw down on the delivery of each VLOC, and principal repayment standard amortizing profile. FMG would control the vessels for the life of the facility and would take ownership of them on maturity or after early repayment. This transaction was claimed to be the largest direct funding arrangement provided a major Chinese financier for a non-Chinese company in Australia. Sinosure provided credit insurance for this facility. Drawdowns (disbursements) were to take place upon delivery of each of the eight VLOCs. As of June 30, 2017, $234 million USD of the facility had been utilized following delivery of the first four ore carriers during the year. The remaining funds under the facility were to be drawn on progressively on delivery of each ship. The proceeds of this facility covered 85% of the $556 million USD construction cost of eight VLOCs, which were under construction at Jiangsu Yangzijiang and Guangzhou Shipbuilding International in China. The vessels were designed to complement FMG's existing port facilities, improve load rates and efficiencies, reduce operating costs, and account for 12% of Fortescue's shipping requirements when entirely delivered. The first VLOC was scheduled for delivery in November 2016, with the last ship to be delivered in mid-2018. Yangzijiang Shipyard was responsible for the construction of four vessels: 'FMG Nicola', 'FMG Grace', 'FMG Sophia', and 'FMG Sydney'. Guangzhou Shipbuilding International was responsible for the construction of the other four vessels. The first vessel, 'FMG Nicola', constructed at Jiangsu Yangzijiang Shipyard, was completed in a ceremony on November 29, 2016. It was named after the wife of Fortescue Chairman Andrew Forrest and arrived in Australia from China on December 19, 2016. The fifth vessel, 'FMG Matilda' was named in a ceremony in Guangzhou, China on December 13, 2017. The final vessel, 'FMG Northern Spirit', was handed over in a naming ceremony in Port Hedland, Western Australia on October 16, 2018.
Staff comments
1. A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. The lessor is the legal owner of the asset, while the lessee obtains the right to use the asset in return for regular rental payments. Under a capital lease (a financial arrangement where the lessee/borrower uses an asset and pays regular installments plus interest to the lender/lessor), rental payments are usually classified as interest and obligation payments, similarly to a mortgage (with the interest calculated each rental period on the outstanding obligation balance). AidData codes capital leases as loans. 2. Fortescue Metals Group Limited is an Australian iron ore company. As of 2017, Fortescue was the fourth-largest iron ore producer in the world.