Yangtze River Development's signing of a $1 billion financing for the completion of a port project with Armada Enterprises, an American venture capital company, represents a milestone in the Xi Jinping’s 'One Belt, One Road' initiative.

The Yangtze River Development, an infrastructure construction firm with a focus on the development of a major port in Wuhan, will work with an Armada subsidiary, Wight International Construction, a Delaware limited liability company (Wight), as its construction partner to complete the Wuhan port project, IJGlobal understands.

Details of the deal

Under the terms of the agreement, Yangtze River Development agreed to issue to Wight a convertible promissory note in the amount of $500 million that may be convertible into 50 million shares of the firm’s common stock.

Yangtze River Development also agreed to contribute 60 million shares of the company's common stock, valued at $8.33 per share, to Armada, 50 million of which will be issued upon closing.

The remaining 10 million shares will be reserved with company's transfer agent and will be issued subject to Armada's fulfilment of its obligation to procure $1 billion in construction financing for the Wuhan project. As a result of this agreement, Yangtze River Development may issue up to 110 million shares of common stock at an average price of $9.09 per share.

In consideration of Yangtze River Development’s convertible promissory note, contribution shares and reserve shares, Wight has agreed to issue the company 100 million membership units in Wight, valued at a minimum of $10 per unit, for an aggregate value of $1 billion. The membership units would convert to limited partnership units in Armada Enterprise, upon Armada's contribution of Wight to Armada.

Armada Enterprises has not responded to IJGlobal’s questions yet, and IJGlobal is still waiting for more comments about the deal from Yangtze River Development.

Armada has also agreed to pay the Company a non-refundable $2 million fee to be held by the Company in escrow as a break-up fee in the event that Armada does not obtain a minimum of $50 million financing. The break-up fee will become a working capital fund for the company and the Wuhan Project if Armada obtains the minimum financing.

So far Yangtze River Development has invested over $300 million into the Wuhan Newport project, and has completed over 140,000 square meters of footprint of commercial buildings.

'One Belt, One Road' initiative

Wuhan Newport is a large infrastructure development project implemented under China's latest 'One Belt, One Road' initiative and is believed to be strategically positioned in the anticipated free trade zone of the Wuhan Port, a crucial trading window between China, the Middle East and Europe. The One Belt, One Road scheme is President Xi Jinping’s strategic move to connect the economic land belt that includes countries on the original Silk Road through Central Asia, West Asia, the Middle East and Europe, as well as a maritime road that links China’s port facilities with the African coast, pushing up through the Suez Canal into the Mediterranean.

The project will include commercial buildings, professional logistic supply chain centres, direct access to the Yangtze River, Wuhan-Xinjiang-Europe Railway and ground transportation, storage and processing centers, and IT supporting services, among others.

Wuhan: China’s transportation hub

Wuhan New Port is made up of ports in four places in Hubei - Wuhan, Ezhou, Huanggang and Xianning. Yangluo Container Port, a major harbor in Wuhan, the capital city of central China’s Hubei Province.

It handled more than 400,000 containers in the first half of 2013, an increase of more than 8.9% year-on-year. In 2015, the cargo throughput and container throughput in Wuhan New Port will exceeded 200 million tons and 2 million TEUs, respectively, which means that Wuhan will be the major shipping centre in the middle reaches of the Yangtze River.

Authorities in Beijing appear to be making Wuhan a regional Chinese logistics and transportation hub, and pushing it to become a key player in China’s “One Belt, One Road” initiative.

Wuhan’s government and major businesses has created several major industrial zones to support the economic development of the region. In addition to important multimodal transportation capabilities, the next effort is to develop significant logistics parks, another point of entry to distribution and cross-docking operations to and from main Central China locations: within a 400km radius of Wuhan, 45 secondary cities are covered by the transportation and logistics network, and Beijing, Shanghai, Shenzhen and Hong Kong are all connected to the city.