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Project: Hong Kong Disneyland theme park and resort complex

Project to be started from 2000, Sponsors: Hong Kong Government and Walt
Cost of the project: HK$ 14 Billion, HK$ 3.3 Billion to be financed by syndicated
bank loan.
Hong Kong Disneyland invited 17 major banks to bid on the project financing
and Chase was chosen as the lead arranger with a commitment to underwrite
to full amount.
Hong Kong Government:
Joined China in 1997, it has high degree of autonomy under the Peoples
Republic of China.
Free market economy, unrestricted capital movement, low tax rates
Stable Hong Kong Dollar ( HK$ 7.80= US$ 1.00 since 1983) and duty free port
Fell into recession following the Thai currency crisis in 1997, though some
recovery seen in mid 1999
The Walt Disney Company:
Established in 1923, it has become multinational, multimedia entertainment
Business segments: Theme parks and Resorts, Media Networks, Studio
Consumer products, and Internet/Direct marketing
Annual revenues: $20 Billion, Operating cash flow: $5 Billion, A debt rating
Disneyland Paris theme park had experienced finance problem due to
aggressive capital structuring
with 75% of the project financed by debt.
To avoid bankruptcy, Disney agreed to forgo some of its management and
other fees.
Project features:
Strategy of Hong Kong Disneyland was to start small and then add capacity
over time as demand grows.
The project would have three phases. Phase I included a Disneyland style park
offering several themed lands featuring Disney rides and attractions
Phase II and III were less defined, but included options to develop adjoining
sites at some points in future.
Park to be constructed in coastline by reclamation of land from ocean side. H.
K. Government agreed to extend coastline
and construct roads and utilities at its expense.
Government supported the project because of the sizable public benefits it
would generate through employment.
Expected rate of return on investment is 17% to 25% per annum, with atleast
6% per annum under worst case scenario.
Land reclamation work would start at the end of 2000, resort construction
would start in 2002 and the park would be ready
for operation by late 2005.
Financing of the Project:
A new corporation, Hong Kong International Theme Parks Limited (HKTP) would
construct, own and operate the resort.
Of the total construction cost of HK$14 billion H. K .Government and Disney
would provide HK$ 3.25 billion and HK$ 2.45 billion of equity respectively. In

addition to that, H. K. Government would provide a long term loan of HK$ 6.1
billion with repayment starting from year 16th of operation till 25th year.
Thus HKTP was falling short of HK$ 2.3 billion. So, it decided to raise HK$ 2.3
billion 15 year, non recourse term loan for construction and a HK$ 1 billion,
nonrecourse revolving credit facility for working capital needs post
HKTP invited its relationship bankers and other bankers to raise HK$ 3.3 billion
non recourse loan package on fully underwritten basis and expected to select
up to 3 lead arrangers for the transaction.

Chase Manhattan Bank

One of Disneys top 10 relationship banks.
3rd largest bank in the US with more than US$400 bn assets and US$175 bn
Leader in the business of syndicated finance, with a 34% of total $ volume
loans. Next largest competitor had a 21% share.
Acquired nearly half of the US market (for loans > US$1bn), three times more
than its nearest competitor.
Received accolades from the financial press Best Loan House 1974-1999
(International Finance Review), Best at US Syndicated loans (Euromoney), Best
Project Finance Arranger in the US (Project Finance).
Formidable competitor in most markets across the world, including Asia 400
professionals in Global Syndicated Finance Group in NY, London, Hong Kong,
Tokyo and Sydney. Structuring and distribution teams at each office.
Largest syndicating platform in the Asia Pacific Region.
Bid-to-lose at first, bid-to-win later
The deal team at Chase Hong Kong office did not feel the project attractive at
the beginning.
The deal had a long tenor, there were problems at Disneyland Paris, sponsors
wanted to mandate 3 lead arrangers and competitors were likely to bid
Thus, Chase decided to bid-to-lose, but bid aggressively enough so that the
firms reputation would be preserved.
In the meeting with Disney Finance team, the Chase team emphasized on its
flexibility on key strategic terms, its credentials as a leading syndication bank
and its knowledge of relationship with the local market.
Indicated an underwriting fee between 100 to 150 bps and interest rate
spreads of 135 to 150 bp over HIBOR
However, Chase revised its objective towards winning the mandate due to
- Spreads on syndicated loans in local market were tightening as liquidity
- Senior HK official re-assured governments commitment to the project
Sub-underwriting strategy for HK$3.3 billion financing
Invitation to 7 banks to make commitment of HK$600 mn
Benefit would be in form of lead arranger titles and sub-underwriting fees of
25 basis points.
6 banks agreed to participate in the deal at HK$600 mn, forcing Chase to
reduce the exposure to HK$ 471 mn ( 0.471*7= 3.3 bn)
General Syndication
Invitation to 67 banks with 3 level of participation

Arranger for HK$250 mn commitments with a upfront fees of 70 bp

Co-arranger tier for HK$150 mn commitments with a upfront fees of 60 bp
Lead Manager tier for HK$ 75 mn HK$ 100 mn commitments with a upfront
fees of 50 bp
All commitments to be pro rata basis for KH$2.3 bn and revolving credit
facility of HK$ 1 bn.
General syndication was a success with commitment of HK$5.3 bn from
25 banks. Credit commitments totalled HK$9.5 bn, with over
subscription of three times.
Basis for dealing with over subscription. Criteria selected
Fairness- Giving banks as close to what they committed
Consistency- Scale back is consistent for all banks within a given tier
Client Consideration Giving appropriate weight to clients preference.