International Corporate and Project Finance will meet Thursdays from January 26 – March 8, 2012 from 6:25-10:00 pm at the Ronald Reagan Building.
The principles of International Finance are the same as those of regular domestic finance. However, in practice International finance introduces unique challenges given cross boarder capital flows, political risk the importance of multilateral financial institutions. This course applies standard financial theory and tools to international problems with a particular focus on international project finance. This course is intended for students who will be involved at any stage of the investment process from corporate sponsors (as members of the corporate finance or strategic planning departments) to transaction advisors (investment or commercial bankers and management consultants) to investors (people responsible for debt/equity research or money management).
The basic objective of this course is to deepen your understanding of corporate finance while at the same time broadening your understanding of finance by venturing into the world of project finance, emerging markets, and international capital markets. Essentially, project companies provide an interesting and very effective setting in which to study core principles of finance and to test where and under what conditions the principles hold. One of the key concepts of the course is the “imperfections framework”: how do market imperfections such as transaction, agency, and financial distress costs affect financing and investment decisions.
A second and related goal of the course is to enhance your ability to create value through investment and financing decisions. Towards that end, the course will analyze how to structure, both contractually and organizationally, investments; how to value projects in general and the equity contributions in particular; how to identify and manage project and sovereign risks; and how to finance projects in terms of both the amount of debt and the types of debt. The ability to understand and discuss these topics requires a solid understanding of the concepts covered in the RC course Finance.
This course assumes a solid understanding of investment theory and corporate finance including capital budgeting (Net Present Value), the Capital Asset Pricing Model (CAPM) and Modigliani-Miller theory (MM Propositions I and II with and without taxes). BUFN 770 (International Investment) is not a pre-requisite, but it is recommended since BUFN 771 is a continuation of BUFN 770.
Grading and Assignments
The course is Lecture and Case driven. A plan of topics is given on the next page along with the assigned readings. Students must solve case studies using techniques from basic finance, statistics, or the concepts introduced in this course. Students are encouraged to work in groups of up to four people.
Groups should hand in written solutions in the form of a business report to management. Four of the full case write-ups should consist of up to five typewritten pages (double spaced, not including appendices), and one of the write-ups may be in the form of a one page summary of the key issues in the case. There are also short write-ups for IndSoft and the IFS Short Case Analysis. You may choose which cases to present in long form and short form. Write-ups are due at the beginning of class on the day of discussion (see calendar), although it would be helpful to me if you can send the write-ups earlier that day, ideally by 4:00 pm. Groups will be asked to present their write-ups in class.
Class participation is essential to the case discussions, and attendance is very important. The final grade will be an average of class participation, cases, and the final take home case.
AssignmentPercent of Grade
Final Take Home Case25%
Students must have access to free course material at Blackboard (http://www.rhsmith.umd.edu/blackboard) and (copyright) notes and cases in a course packet available at www.XanEdu.com (search under University of Maryland and particularly R.H. Smith School of Business).
There are no required text books for the course. However, there are two suggested textbooks, Multinational Financial Management, any edition, by Alan C. Shapiro (published by Wiley), and International Financial Management by Robert J. Hodrick and Geert Bekaert (published by Pearson). These textbooks are for background only and cover capital budgeting, the CAPM, Modigliani-Miller theory.
Academic Integrity and Intellectual Standards
The Robert H. Smith School of Business fosters an environment of academic integrity and development of thoughtful and sound analysis. Faculty and students will hold each other accountable to meeting intellectual standards including demonstrating clarity of thought, articulating statements based on evidence, presenting relevant arguments, and engaging in logical reasoning. By adhering to these standards, students will develop essential critical thinking skills to be demonstrated in both their oral and written work.
The University’s Code of Academic Integrity is designed to ensure that the principles of academic honesty and integrity are upheld. All students are expected to adhere to this Code. The Smith School does not tolerate academic dishonesty. All acts of academic dishonesty will be dealt with in accordance with the provisions of this code. Please visit the following website for more information on the University’s Code of Academic Integrity: http://www.studenthonorcouncil.umd.edu/code.html
If you need extra help you should contact me at work or on my cell phone. But, also remember the Learning Assistance Service, 2201 Shoemaker Building, 301-314-7693. Their educational counselors can help with time management, reading, note-taking, and exam preparation skills.
Special Needs: Any student with special needs should bring this to the attention of the instructor as soon as possible, but not later than the second week of class.
January 26:Introduction and overview of the course (read the syllabus). Discussion of the structure and format of the class and a review of basic concepts in international finance such as foreign exchange markets, capital budgeting and global cost of capital, the use of interest rate and currency swaps, and political risk assessment and management. Please read: Note on Valuing Cash Flows in an International Context (HBS 9-803-028) February 2:Why use Project Finance: Comparative Analysis of Corporate Finance and Project Finance.
Case Study: BP Amoco (A): Policy statement on the Use of Project Finance
Case Study: BP Amoco (B): Financing Development of the Caspian Oil Fields Please read: An Overview of Project Finance (HBS 9-202-105) Please review: Note on Valuing Cash Flows in an International Context (HBS 9-803-028)
(Case Write-up 1 Due and Indsoft Assignment Due)
February 9: Guest Lecturer: Robin Glantz – Chief Credit Officer, the International Finance Corporation (World Bank Group). Introduction to Project Finance, and the Structure of Project Financing. Several short cases will be distributed in the course materials prior to class.
Please review: An Overview of Project Finance (HBS 9-202-105)
(IFC Short Case Analysis Due)
February16:Project Management and Large Scale Investment (Term Sheets). Raising Debt and Equity in International Markets
Case Study: Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan (A and B)
Please review: An Overview of Project Finance (HBS 9-202-105)
(Case Write-up 2 Due)
February 23:Guest Speaker: Everett J. Santos
Managing Risky Projects and Project Valuation in Emerging Markets.
In Class Discussion of current issues in International Project Finance from a transactional (case) and institutional approach.
Role of Multilateral Agencies, including World Bank and the International Finance Corporation (IFC), and international corporate bond markets.
Case Study: Petrolera Zuata, Petrozuata C.A., Venenzula
(Case Write-up 3 Due) This Class will begin at 6:00
March 1:Managing Risky Projects and Project Valuation in Emerging Markets (continued) Case Study: Financing the Mozal Project, Mozambique
(Case Write-Up 4 Due)
Guest Speaker: Peter Tropper, Principal Funds Specialist, International Finance Corp.
March 8:Guest lecturer: Jack Garrity. The Case for International Diversification.
Chinese Overseas Investment and Sovereign Wealth Funds.
Case Study: Norway Sells Walmart
(Case Write-Up 5 Due)
March 15: Final Project – Individual Case Write-up Due
Coursepack: Cases and Notes
1. Note on Valuing Cash Flows in an International Context (HBS: 9-803-028) 2. An Overview of Project Finance (HBS: 9-202-105)
3. BP Amoco (A and B) (HBS: 9-201-054 and 9-201-067)
4. Chase’s Strategy for Syndicating the Hong Kong Disneyland Loan” (A and B) – Benjamin C. Esty, Michael Kane (HBS: 9-201-072) 5. Project Valuation in Emerging Markets (HBS: 9-702-077)
6. Petrolera Zuata, Petrozuata C.A. – Benjamin C. Esty, Matthew Mateo Millett. (HBS: 9-299-012) 7. Financing the Mozal Project – Benjamin C. Esty, Fuaad A. Quershi (HBS: 9-200-005) 8. Norway Sells Walmart – Robert G. Pozen (HBS: 9-308-019)
International Corporate and Project Finance Stephen Wallenstein
Guidelines for Case Write-Ups
I’m sometimes surprised with inadequate case write-ups written by students, even by experienced students in advanced finance courses. Somehow not everybody has become familiar with appropriate case analysis. So this note will help provide some structure for your write-ups. Note it is not essential to use my structure. But it is important to use some structure! After all, I need to figure out what you are doing and give you some feedback and a grade. So your write-up should help me follow the problem, analysis, and solution.
Identifying the Problem
A good case report requires the student to identify and state the basic problem or situation that it is analyzing. For example, a short case should clearly state the basic issues and provide the framework for analyzing these problems. Long case write-ups require a more detailed response to specific questions. It is difficult for me to follow the subsequent analysis if I don’t know what problem the student is attempting to solve.
In some cases I may wonder whether the student has even taken the time to carefully identify a problem. Failure to identify a problem can result in random number crunching and sloppy analysis with no structure. Asking the right questions is a critical business and finance skill.
Alternatives and Assumptions
Your case analysis may then identify alternatives to solving the business problem. Of course if the case problem is to calculate net present value then you only have one interesting alternative. But often you must decide among multiple methods of risk mitigation, different financing opportunities, and legal structures.
You must probably make some reasonable assumptions here to narrow the focus and analysis. It is entirely acceptable to simplify your analysis to focus on the important alternatives and conceptual issues. For example, in most cases (outside fixed-income) you can use either quarterly or annual cash flows. You may often save yourself a lot of time by making the appropriate simplifying assumptions.
But do not trivialize the case. Cases may have ambiguous or even conflicting information. Don’t make drastic assumptions that eliminate the interesting financial and legal concepts. Your task is to analyze the interesting and relevant financial and legal issues without getting mired in extraneous details.
If you have a good question and reasonable alternatives then you can probably use your finance tools and knowledge to analyze them. This is case-specific, but typically this is the time to use net present value, or covered interest rate parity, or an option formula. Some cases are easier to solve in terms of the present value of dollars, while others may be easier to explain using the future value of another currency. Framing the analysis properly can simplify the analysis and presentation. Please put complex calculations into an appendix and cite the basic assumptions and major numbers in the main text. I want to read your analysis, I do not want to recreate it!
If you have good structure then your conclusion will flow naturally from your analysis of alternatives. It isn’t hard to write “Do the alternative with the highest net present value.” Your conclusion may be broader if the case contains more issues and alternatives. For example, the analysis may hinge critically on whether a parent company can actually repatriate foreign profits. It might be silly to make an absolute assumption one way or the other. Instead the conclusion might indicate how sensitive the analysis is to this assumption.