FMG is putting in 10% of their profits into FFI, this will provide the initial capital for the projects probably about 20% of the projects costs, the other 80% will be borrowed.
if the project ends up earning a return of say 12% on the capital invested in it, and FMG can borrow at say 5%, then FMG will be earning 12% on their original 20% they funded, while also earning the margin between the projects 12% return and the 5% they have to pay to bond holders.
Pretty much all infrastructure companies operate using this model.
the loans will be secured by the project, not FMG. So all FMG can lose is their initial 20% “deposit/equity” in the project.
Iron ore price, page-38319
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