Guangzhou Guowei Piped LPG Development Co. Limited

The associate credit manager of a Hong Kong bank is considering the final terms of a loan package to finance a new liquefied petroleum gas (LPG) vaporizing station for the bank's customer, Guangzhou Guowei. During the past year, the credit manager and her colleagues have been able to assess the company's existing activities and prospects, and the outlook for the new LPG station seems promising. Three key questions will have to be addressed in the credit manager's presentation to the bank's senior management. First, is the proposed interest rate for this loan adequate, given the potential risks the LPG company faces with this new project? Second, would the company's future cash flows be adequate to service the payments of this term loan? And third, what repayment schedule should be recommended? The credit manager decides to develop her own set of pro forma statements as a means of testing the reasonableness of Guangzhou Guowei's plans and to help her decide on an appropriate loan structure.