Loans Payable | 3 Months Ended |
Mar. 31, 2015 |
Loans Payable [Abstract] | |
Loans Payable | (8) Loans Payable |
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Short-term bank loans |
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| | | | March 31, | | | December 31, | |
2015 | 2014 |
Industrial & Commercial Bank of China (“ICBC”) Loan 1 | | (a) | | $ | 2,442,122 | | | $ | 2,451,381 | |
The Commercial Bank of the City of Zhangjiakou | | (b) | | | 3,256,162 | | | | 3,268,508 | |
ICBC Loan 2 | | (c) | | | 814,041 | | | | 817,127 | |
ICBC Loan 3 | | (d) | | | 3,256,162 | | | | 3,268,508 | |
Total short-term bank loans | | | | $ | 9,768,487 | | | $ | 9,805,524 | |
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(a) | On June 26, 2014, the Company obtained an accounts receivable factoring facility from the ICBC for $2,442,122 and $2,451,381 as of March 31, 2015 and December 31, 2014, respectively. Under the factoring agreement, the bank has recourse against the Company if the receivables, which remain in the Company’s books at all times, are not fully collected. The factoring facility will expire on June 25, 2015 and bears an interest rate of 110% of the primary lending rate of the People’s Bank of China and was at 6.6% per annum at the time of funding. | | | | | | | | | |
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Concurrent with the signing of the new factoring agreement, the Company also entered into a financial service agreement with the ICBC, which provides accounts receivable management services to the Company during the terms of the underlying factoring facility. | | | | | | | | | |
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(b) | On June 9, 2014, the Company obtained from the Commercial Bank of the City of Zhangjiakou a banking facility on bank loans and notes payable, which is guaranteed by the Company’s CEO and Shijiazhuang Baode Guarantee Service Company. In obtaining the guarantee from Shijiazhuang Baode Guarantee Service Company, Hebei Tengsheng Paper Co. Ltd (“Hebei Tengsheng”), a third party which owns the land use rights of about 330 acres (or 1.33 million square meters) of land in the Wei County and leases about one-fourth of the premises to Orient paper HB as our production bases of tissue paper and other future facilities, and an independent third party provided a guarantee with the land use rights and buildings pledged by Hebei Tengsheng as collateral. On July 18, 2014, the Company entered into a working capital loan agreement with the bank for $3,256,162 and $3,268,508 as of March 31, 2015 and December 31, 2014, respectively. The loan will be repayable on June 9, 2015 and bears a fixed interest rate of 11.88% per annum. | | | | | | | | | |
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(c) | On August 19, 2014, the Company obtained a new accounts receivable factoring facility from the ICBC for $814,041 and $817,127 as of March 31, 2015 and December 31, 2014, respectively. Under the factoring agreement, the bank has recourse against the Company if the receivables, which remain in the Company’s books at all times, are not fully collected. The factoring facility will expire on June 11, 2015 and bears an interest rate of 110% of the primary lending rate of the People’s Bank of China and was at 6.6% per annum at the time of funding. | | | | | | | | | |
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(d) | On November 20, 2014, the Company entered into a working capital loan agreement with the ICBC for $3,256,162 and $3,268,508 as of March 31, 2015 and December 31, 2014, respectively. The loan bears an interest rate of 110% over the primary lending rate of the People’s Bank of China and was at 6.16% per annum at the time of funding. The loan will be repayable on December 3, 2015. The working capital loan was guaranteed by Hebei Tengsheng with its land use right and real estates pledged by Hebei Tengsheng as collateral for the benefit of the bank. | | | | | | | | | |
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As of March 31, 2015, there were guaranteed short-term borrowings of $3,256,162 and secured bank loans of $6,512,325. As of December 31, 2014, there were guaranteed short-term borrowings of $3,268,508 and secured bank loans of $6,537,016. The factoring facility was secured by the Company’s accounts receivable in the amount of $3,820,506 and $3,730,123 as of March 31, 2015 and December 31, 2014, respectively. |
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The average short-term borrowing rates for the three months ended March 31, 2015 and 2014 were approximately 8.21% and 6.79%, respectively. |
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Long-term loans from credit union |
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As of March 31, 2015 and December 31, 2014, loans payable to Rural Credit Union of Xushui County, amounted to $5,885,513 and $5,907,828, respectively. |
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On April 16, 2014, the Company entered into an agreement with the Rural Credit Union of Xushui County for an amount that is $1,603,660 and $1,609,740 as of March 31, 2015 and December 31, 2014. The loan is guaranteed by an independent third party. Interest payment is due quarterly and bears the rate of 0.72% per month. The loan balance would be repayable by various installments from June 21, 2014 to November 18, 2018. As of March 31, 2015, total outstanding loan balance was $1,603,660 with $65,123 becoming due within one year and presented as current portion of long term loans from credit union in the condensed consolidated balance sheet. As of December 31, 2014, total outstanding loan balance was $1,609,740 with $65,370 becoming due within one year and presented as current portion of long term loans from credit union in the consolidated balance sheet |
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On July 15, 2013, the Company entered into a new agreement with the Rural Credit Union of Xushui County for a term of 5 years, which is due and payable on various scheduled repayment dates between December 21, 2013 and July 26, 2018. The loan is secured by certain of the Company’s manufacturing equipment in the amount of $15,715,157 and $19,300,765 as of March 31, 2015 and December 31, 2014, respectively. Interest payment is due quarterly and bears a fixed rate of 0.72% per month. As of March 31, 2015, the total outstanding loan balance was $4,281,853, with $81,404 becoming due within one year and presented as current portion of long term loans from credit union in the condensed consolidated balance sheet. As of December 31, 2014, the total outstanding loan balance was $4,298,088, with $81,713 becoming due within one year and presented as current portion of long term loans from credit union in the consolidated balance sheet. |
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Total interest expenses for the short-term bank loans and long-term loans for the three months ended March 31, 2015 and 2014 were $327,707 and $238,585, respectively. |
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Financing with Sale-Leaseback |
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The Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with China National Foreign Trade Financial & Leasing Co., Ltd ("CNFTFL") on June 16, 2013, for a total financing proceeds in the amount of RMB 150 million (approximately US$24 million). Under the sale-leaseback arrangement, Orient Paper HB sold the Leased Equipment to CNFTFL for RMB 150 million (approximately US$24 million). Concurrent with the sale of equipment, Orient Paper HB leases back all of the equipment sold to CNFTFL for a lease term of three years. At the end of the lease term, Orient Paper HB may pay a nominal purchase price of RMB 15,000 (approximately $2,400) to CNFTFL and buy back all of the Leased Equipment. The sale-leaseback is treated by the Company as a mere financing and capital lease transaction, rather than a sale of assets (under which gain or loss is immediately recognized) under ASC 840-40-25-4. All of the Leased Equipment are included as part of the property, plant and equipment of the Company for the periods presented; while the net present value of the minimum lease payment (including a lease service charge equal to 5.55% of the amount financed, i.e. approximately US$1.36 million) was recorded as obligations under capital lease and was calculated with CNFTFL’s implicit interest rate of 6.15% per annum and stated at $25,750,170 at the inception of the lease on June 16, 2013. The balance of the long-term obligations under capital lease were $4,072,946 and $4,090,413 as of March 31, 2015 and December 31, 2014, which is net of its current portion in the amount of $11,898,798 and $12,258,488, respectively. |
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Total interest expenses for the sale-leaseback arrangement for the three months ended March 31, 2015 and 2014 were $156,054 and $261,433, respectively. |
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As a result of the sale and leaseback of equipment on June 16, 2013, a deferred gain in the amount of $1,379,282 was recorded. The deferred gain is being amortized over the lease term of three years and as an offset to depreciation of the Leased Equipment. |
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As part of the sale-leaseback transaction, Orient Paper HB entered into a Collateral Agreement with CNFTFL and pledged the land use right in the amount of approximately $7,273,059 on some 58,566 square meters of land as collateral for the lease. In addition to Orient Paper HB’s collateral, Orient Paper Shengde also entered into a Guarantee Contract with CNFTFL on June 16, 2013. Under the Guarantee Contract, Orient Paper Shengde agrees to guarantee Orient Paper HB’s performance under the lease and to pledge all of its production equipment as additional collateral. The net book value of Orient Paper Shengde’s asset guarantee was $32,468,616 and $33,287,324 as of March 31, 2015 and December 31, 2014, respectively. |
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The future minimum lease payments of the capital lease as of March 31, 2015 were as follows: |
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March 31, | | Amount | | | | | | | |
2016 | | $ | 12,425,754 | | | | | | | |
2017 | | | 4,134,173 | | | | | | | |
| | | 16,559,927 | | | | | | | |
Less: unearned discount | | | (588,183 | ) | | | | | | |
| | | 15,971,744 | | | | | | | |
Less: Current portion of obligation under capital lease, net | | | (11,898,798 | ) | | | | | | |
| | $ | 4,072,946 | | | | | | | |
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