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In late 1999, the Walt Disney Co. and the Hong Kong government agreed to develop Hong Kong Disneyland, a theme park and resort complex planned to open in late 2005. In order to finance the construction and working capital of the project, the selected underwriter, Chase Manhattan Bank, needed to raise HK$3.3 billion of non-recourse bank loans. The key challenges facing Chase were whether to bid at all, how to bid and how to structure the syndication that both meets the borrowers needs and its own profit objectives. In order to assess the deal, we will start from the first round bidding then focus in depth on the three syndication strategies Chase proposed.
to other strategies, this would also mean sharing the profit as well as league table status. 3.3 The Third Strategy
The third strategy for Chase, as the sole mandate, is to skip the step of sub-underwriting and directly start general syndication. Compared to the other two strategies, the general syndication strategy increases return while adds risks to Chase. Generally, without sub-writing, Chase retains more profitability from the deal; however, Chase also bears all the underwriting risk. This strategy involves 4 tiers, 21 banks, and the largest syndication structure compared to the other two strategies. This Strategy keeps the syndication size for Chase at HK$300 million, 9.1% of the total amount. See detailed allocation in Appendix 2 (c) Besides, inviting a larger number of banks could improve the competitiveness of the deal, resulting to better execution and pricing. However, more banks involved may lead to higher administration costs and coordination issues. In addition, Chase would hold less controlling power with more banks included in the deal. This sole mandated without subunderwriting strategy on one hand would improve the compensation for Chase. The total fees for Chase under the third strategy would reach HK$23.36 million, 69% and 166% higher than strategy 1 and strategy 2, respectively. However, the strategy may also significantly expose Chase to underwriting risk, as Chase is the only underwriter of the deal and would underwrite the whole amount, HK$3.3 billion. If the market would not buy the deal from Chase, Chase would face significant loss. Although this strategy generates the most compensation, the total fees earned only accounts 0.71% of the total exposure.
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Of the 48.6 million visitors, 71.8% came from Mainland China. In 2012, Mainland China continued to be our largest visitor source market with 34.9 million arrivals (+24.2%), accounting for 71.8% of our total arrivals. This proportion was just 40% in 2002. Amongst all Mainland arrivals, 19.8 million (56.7%) were same-day visitors, up by 36.6% year-on-year. 23.1 million (66.3%) Mainland visitors came to Hong Kong under the Individual Visit Scheme (IVS), up by 26.2% over 2011. In 2011, the shopping expenditures of mainlanders were HK$110.8 billion (27.3% of Hong Kongs total retail sales). That is almost 6% of the citys GDP. Mainland tourists to Hong Kong are also big spenders, according to the report, spending an average of HK$8,200 each, 30% more than visitors from other countries.3 In other word, we may infer that Hong Kong Disney relies heavily on the tourists from Mainland China. On the other hand, the Disneyland was also a boost of Hong Kong tourism. Over 70% tourists from Mainland China listed Disney as an important attraction of the trip in Hong Kong.4 However, the newly announced Disneyland in Shanghai would be a great challenge to Hong Kong Disney. The new Disneyland in Shanghai will distract many visitors from Hong Kong Disney. Despite the fact th at more than a third of Hong Kong Disneylands visitors come from China about 1.6 million each year the theme park just ended its six-year deficits. And now Shanghai enters into the picture. Shanghais Disneyland will be six times bigger compared to th e current size of Hong Kong Disneyland, which only offers 16 attractions. Fortunately, Hong Kong can still race against time and make necessary improvements before Disney Shanghai opens in 2014. A HK$3.6 billion (US$465 million) expansion project is due to begin at the end of the year and will finish by the time Shanghai Disneyland opens its door to the public. However, with Universal Studios in Singapore set to open early in 2010, Hong Kong Disneyland has to deal with competition long before Shanghais Di sneyland opens, especially since the target demographic is the same. With Singapores close proximity to Indonesia and Malaysia, a significant chunk of its intended visitors may end up not visit ing Disneyland at all, even when they are in Hong Kong. However, we have reasons to believe that Walt Disney Company must have studied the matter of the impact on Hong Kong Disneyland carefully before taking that giant step into China. And Disney Corporation believes that as a county with an amazing population of over 1.3 billion, China is still an incomparably huge market that can afford two Disneyland.
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APPENDIX 1 Appendix 1
ASSUMPTIONS ON FEE CALCULATIONS - CHASE'S POINT OF VIEW UNDERWRITING FEE SUB-UNDERWRITING FEE TOP TIER CLOSING FEES CHASE'S FINAL HOLD POSITION OF $HK 300 MILLION #1EXHIBIT 8a $1.776 HK$3,300 #2EXHIBIT 8b #3EXHIBIT 8c
$1.126 HK$1,100
$2.955 HK$3,300
CHASE'S EXPOSURE IN THE GENERAL SYNDICATION $HK - MILLIONS $US - MILLION CHASE'S FEES DIVIDED BY GENERAL SYNDICATION EXPOSURE NO. OF BANKS NEEDED TO CONTROL 60% 7.764705882 HK$660 $85 2.0894% 7 HK$1,100 141 0.7986% 8 HK$3,300 423 0.7080% 10
Appendix 2 Loan Amount (HK$ million)= Underwriting Fee= Sub-Underwriting Fee= Top-Tier (Arranger) Fee= Appendix 2(a) Strategy 1 Assumptions on fee calculation $HK/$US Exchange 3,300.00 Rate= Total underwriting 1.25% Fees ($HK millions)= 0.25% 0.70% Mandate= Sub-Underwriting=
Sole-mandated with sub-underwriting Fund Allocation (HK$MM) Sub Underwriting Allocation 660.00 2,640.00 250.00 150.00 100.00 3,300.00 3,300.00 Fee Allocation Per Bank Income (HK$000) Closing Sub-U/W Fee Spread Income 1,650.00 1,650.00 2,100.00 2,100.00 1,750.00 900.00 500.00 Invitation Amount
Initial Underwriting Tiers Chase Lead Arranger Arranger Co-Arranger Lead Managers Sum # 1 4 4 4 2 15 Commitment Amount 3,300.00 Total 3,300.00
General Syndication Percent Final Total Scaled Allocation Back 660.00 54.50% $300.00 2,640.00 54.50% $300.00 1,000.00 0.00% $250.00 600.00 0.00% $150.00 200.00 0.00% $100.00 5,100.00
Total Per Bank Pool Income 200.00 200.00 HK$ 13,850.00 3,950.00 1,750.00 900.00 500.00 (US$000) 1,775.64 506.41 224.36 115.38 64.10
Total for all Banks HK$000 13,850.00 15,800.00 7,000.00 3,600.00 1,000.00 41,250.00 (US$000) 1,775.64 2,025.64 897.44 461.54 128.21 5,288.46
Underwriting Fee Chase Lead Arranger Arranger Co-Arranger Lead Managers Sum 0.30% 0.25%
Appendix 2(b) Strategy 2 Loan Amount (HK$ million) Underwriting Fee Sub-Underwriting Fee Top-Tier (Arranger) Fee
Joint-mandated without sub-underwriting Assumptions on fee calculation 3300 0.0125 0.0025 0.007 Mandate Sub-Underwriting $HK/$US Exahgne Rate Total underwriting Fees ($HK millions) Joint No 7.8 41.25 Fund Allocation (HK$MM) Sub Underwriting Allocation Invitation amount 300 300.00 250.00 150.00 100.00 3,300.00 Total commitment 300 600.00 1,000.00 900.00 500.00 3,300.00 -
Initial Underwriting # Chase # Other banks Lead Arranger Arranger Co-Arranger Lead Manager Sum 1 2 0 4 6 5 18 Commitment Amount 1,100 1100 Total 1,100.00 2200
General Syndication Final Percent allocation scaled back (HK$MM) 300 300.00 250.00 150.00 100.00
Underwriting Fee Chase 2 other mandated Banks Lead Arrangers (sub UW) Arranger Co-Arrangers Lead Managers 0.55% 0.55%
Fee Allocation Per Bank Income (HK$000) Closing Sub-U/W Fee Pool Income Spread Income 2,100.00 633.33 2,100.00 1,750.00 900.00 500.00 633.33 -
Total Per Bank (HK$M) 8,783.33 8,783.33 1,750.00 900.00 500.00 (US$) 1,126.07 1,126.07 224.36 115.38 64.10
Total for all Banks (HK$) 8,783.33 17,566.67 7,000.00 5,400.00 2,500.00 41,250.00 (US$) 732.91 1,042.74 $2,333.33 1,800.00 833.33
23,100
Appendix 2(c) Strategy 3 Loan Amount (HK$ million) Underwriting Fee Sub-Underwriting Fee Top-Tier (Arranger) Fee
Sole-mandated without sub-underwriting Assumptions on fee calculation 3300 0.0125 0 0.007 Mandate Sub-Underwriting $HK/$US Exahgne Rate Total underwriting Fees ($HK millions) Joint No 7.8 41.25 Fund Allocation (HK$MM) Sub Underwriting Allocation Invitation amount 300 Total commitment 300 1,000.00 1,200.00 800.00 3,300.00
Initial Underwriting # Chase # Other banks Lead Arranger Arranger Co-Arranger Lead Manager Sum 1 0 0 4 8 8 21 Commitment Amount 3,300.00 Total 3,300.00
General Syndication Final Percent allocation scaled back (HK$MM) 300 250.00 150.00 100.00
Underwriting Fee Chase # Other mandated Banks (2) Lead Arrangers (sub UW) Arranger Co-Arrangers Lead Managers 0.55%
Fee Allocation Per Bank Income (HK$000) Closing Sub-U/W Fee Pool Income Spread Income 2,100.00 2,800.00
0.70%
300
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