Reborn, back to a small county town to become a wealthy family

Chapter 798 Construction projects can still be done

Shen Jinglan didn't stay in the private room for long. After Guo Yi sat down next to Luo Yang, she made an excuse to go about her business.

"Brother, ever since I received your call a few days ago, I've been itching to get back to you."

After another round of drinks, Fu Bin finally got down to business: "This industrial park model you mentioned is something I've never encountered before. Over the past few days, I've been repeatedly considering the risks and benefits involved. Because I don't have a deep enough understanding of it, I'm unsure of myself, which is why I invited you here to discuss it."

Ultimately, Fu Bin didn't understand this construction management model well enough, so he was unsure of himself.

"Brother, before I explain, let me draw a conclusion first."

Luo Yang explained with a smile, "With less financial pressure, being able to secure this kind of construction management project is a way for the company to open up a new and relatively stable business channel."

This situation may be less common in economically developed regions, since local finances in developed regions are relatively abundant and can support the needs of local development investment.

However, for regions with relatively weak economic development, fiscal revenue is also quite tight. The funds required for urbanization development far exceed the fiscal revenue of the entire city. Under such circumstances, the construction management model has emerged.

The initial beneficiaries of this model were state-owned construction companies.

During this period of about 12 years, the real estate market was relatively stable, so many real estate companies borrowed heavily and actively expanded. During this period, the cost of funds used by bank financing platforms was about 6.5 to 7%.

However, each company has a limited loan amount from banks. In order to seize the market and reserve more land resources, many real estate companies have begun to raise funds from channels other than banks. The cost of using funds from these channels often exceeds 10%.

Given the high cost of using such funds, few real estate companies at this stage dare to take on construction management projects. Even if they have such abundant financial strength, they can use it to develop projects and reap greater returns. Comparing the two, the choice becomes obvious.

However, during those years, many state-owned enterprises received funds allocated from higher levels, including the central bank and the China Development Bank, and the cost of using these funds was unbelievably low.

Most state-owned enterprises have a capital utilization cost of 2% to 3%, and some enterprises even have a capital utilization cost of only about 1%.

In such a market environment, state-owned enterprises actually have few new investment projects and no desire to expand outwards, so construction management projects have emerged.

At such times, many local governments approach state-owned enterprises with large amounts of idle funds, requesting them to construct public works projects and new investment projects in their cities.

Local governments will use fiscal revenue as collateral to bring in state-owned enterprises with large cash flows.

In particular, state-owned enterprises responsible for infrastructure construction.

Local governments will sign construction contracts with these companies, allowing them to build local infrastructure projects and industrial park projects for investment attraction by paying full upfront costs for a period of time.

Under such agreements, the construction management company cannot ask the local government for a single penny before the project is completed, and all funds must be borne by the construction management company itself.

Of course, local governments are not going to break their promises, or rather, the construction projects actually make up for the problems caused by the lack of funds in local governments, so local governments will not treat the companies that undertake the construction projects unfairly.

Generally, local governments will use fiscal revenue as collateral to allow construction companies to fully undertake local urban construction needs. Correspondingly, the returns for fully funded projects are much higher than those for normal construction project bidding projects.

Normally, the cost of a construction project is the price approved in the cost estimate document issued by the province. On this basis, the client will reduce the cost by 8-15% from the total bid price. The remaining part is the sum of the cost and profit of the bidding contractor.

However, for these types of construction projects, when the contractor prepares the tender documents according to the price approved in the cost estimate, the local government will not only not cut the price, but will also add the bank's loan interest rate for the same period to the normal quotation.

If a typical private enterprise undertakes this type of construction project, its financing costs already exceed 10%, which offsets the cost of not negotiating the price. The remaining bank interest rate is practically negligible.

However, state-owned enterprises are different because their capital usage costs are very low, averaging only about 2%. Just from this alone, they can earn about 10% more profit on their principal, which is much more profitable than keeping their capital in a bank to earn interest.

Of course, besides the construction agency channel, state-owned enterprises have many other ways to profit from low-interest funds.

Luo Yang had witnessed a real estate company experiencing cash flow problems. Due to its debt ratio, the company was unable to obtain financing from banks and had to resort to private financing to resolve the crisis.

At such times, the surplus funds held by state-owned assets become highly sought after. With the help of intermediaries, state-owned assets provide the funds, banks and trusts provide guarantees, and intermediaries collect bridging fees. The cost of financing for real estate companies once reached as high as 18% or more.

Don't complain about the price; if you don't lend it to me, I'm doomed!

Therefore, in the early days, very few private enterprises engaged in construction management projects.

Only state-owned enterprises with extremely low capital costs can undertake such projects without any pressure, while still retaining a profit margin of more than 10%.

Therefore, after Luo Yang said those words, Fu Bin had some doubts.

However, based on his consistently accurate impression, he still retained some patience and wanted to hear Luo Yang's subsequent explanation.

"First of all, if you follow the normal procedures for this construction project, there will be no profit to speak of. Apart from accumulating experience in industrial park construction projects, the gains will be almost zero."

Luo Yang said calmly, "But because of our relationship, this construction agency model has become profitable."

"You should have told me, because now I'm even more curious."

Fu Bin turned to look at Luo Yang, his face full of curiosity.

"Because of the special nature of the new energy vehicle manufacturing project, Jiangning Development Zone is willing to help us coordinate an interest-free loan of about 10 billion yuan."

Luo Yang smiled and said, "We will apply to the bank before and after the project is officially launched. In the early stages of the project construction, this money can only lie in the company account. Therefore, I plan to pay Guotai the project payment according to the normal construction progress."

With just that one simple sentence, Fu Bin immediately understood.

"Because this 10 billion yuan is an interest-free loan, to some extent, the cost of using the funds is zero, which is even lower than the cost of using the idle funds of state-owned enterprises."

Fu Bin immediately picked up where Luo Yang left off: "So you plan to use this 10 billion yuan interest-free loan to pay Guotai's construction fees. We at Guotai will discuss how to share the profits from the high-profit construction fees we received by fully financing the project later?"

Of the people present, Luo Yang and Fu Bin need no further explanation, and Wu Siyuan, who was in charge of business, also understood the meaning behind the words.

However, Shao Yujie and Guo Yi still didn't understand.

"Mr. Fu, I'm a little confused by what you're saying?"

Not long after they sat down, before Guo Yi and Shao Yujie could even start chatting, both of them were listening intently to the conversation between Luo Yang and Fu Bin.

"Mr. Guo, does your Dahua Auditing firm rarely handle business from real estate companies?"

"Basically not."

After thinking for a moment, Guo Yi replied, "We haven't even taken on any business from construction companies."

"No wonder!"

Fu Bin smiled and then explained, "To give you an analogy, if there is a project with a cost of 1 million, the normal bid should be around 1.25 million. However, the client will try to lower the price during the bidding process, taking away about 10% to 15% of the bid, so that the contract price of the project becomes about 1.1 to 1.15 million. This means that the normal gross profit of the construction unit is about 1000 million to 1500 million."

These words are easy to understand, especially for Guo Yi, who is quite sensitive to numbers.

"If it's a construction management project, and our company were to undertake it now, the payment would need to be settled in installments over several years after the project is completed."

Fu Bin patiently continued to explain: "However, most companies don't have such abundant cash flow. They need to raise funds from external sources to cover the upfront costs. The cost of external financing is around 10% to 12%. The construction period for a normal project is more than two years, and the settlement of project payments for construction projects will be delayed by another two or three years. All in all, the cost of funds could reach 18% to 20% or more. What does this mean?"

"This means that there is almost no profit to be made from construction projects."

Guo Yi has this much judgment and quickly came to a conclusion.

“Yes, if you calculate it that way, private enterprises generally make almost no profit from undertaking these kinds of construction projects; it's like working for free,” Fu Bin said with a smile. “But now, Brother Luo has a 10 billion yuan interest-free loan. Before the project's infrastructure is completed, it will basically be idle. Now, this money can be used to pay us for the project, meaning we directly receive 10% to 15% of the profit. Two or three years after the project is completed, the client who commissioned the construction project will settle the payment with the construction company based on a profit margin of about 20% above the project cost. At that time, we will return the principal plus half of the overall profit to Brother Luo.”

"With a profit margin of 30% to 35%, even if the settlement is spread over three years, the average annual profit still exceeds 10%!"

Guo Yi immediately calculated the result, and then exclaimed in surprise, "This is a win-win situation for both President Fu and President Luo!"

Fu Bin immediately gave Guo Yi a thumbs up.

"Mr. Guo, just looking at this point, I think there's no problem with your Dahua Audit taking on the audit projects for real estate companies."

After saying that, he even winked at Luo Yang.

Why did Guo Yi come to Jiangnan Business Club?

Isn't this all for this moment?

As a partner in a small auditing firm, I strive to secure stable business from every large company.

Normally, Dahua would have to pay a high price to win Fu Bin's business, and there's no guarantee of success.

but now
It really was just a glass of wine, a beautiful misunderstanding.

Guo Yi felt both excited and apprehensive at that moment.

She subconsciously looked at Luo Yang.

Anxiety, anticipation, pleading, vulnerability, hope—the woman's eyes held such complex emotions at that moment.

"Can you handle such a large workload?"

Luo Yang turned to Guo Yi and said, "My brother owns two real estate companies. One of them has annual sales exceeding 10 billion yuan, and the other is now worth several billion yuan. Both companies have clear goals. Don't let this business affect their listing process."

The implication is that you should do it if you can, but don't force yourself if you can't.

"Don't worry, some of our business units are listed companies."

Guo Yi shook Luo Yang's arm playfully: "Absolutely professional!"

"I'll test it out on my own company first."

Luo Yang shook his head and said, "If your skill level isn't up to par, then you don't need to go looking for my brother anymore."

To him, Guo Yi was a stranger, and it wasn't enough for him to endorse her without good looks.

Therefore, he did not follow Fu Bin's advice and let Guo Yi get the business orders so easily.

"Hey, bro, what are you saying?"

Before Guo Yi could respond, Fu Bin interrupted Luo Yang with a smile: "The business I'm giving to President Guo has nothing to do with you. Don't get involved!"

Luo Yang: "."

"President Fu, no matter what, I must thank you for your consideration."

Guo Yi released her grip on Luo Yang's arm and picked up a wine glass from the glass coffee table: "But President Luo has already spoken, and I dare not disobey you. Please wait until I have received your approval before coming to see you. I hope President Fu will take good care of me then."

"Okay, you can come to see me anytime. Also, don't call me President Fu anymore, it sounds too formal. Just call me Big Brother."

Fu Bin, to save face, sipped his drink and then gave Luo Yang a thumbs up after putting down his glass.

"That's what I admire about you, bro. When can we exchange our tips?"

The implication is that Luo Yang is extremely skilled at training women.

Luo Yang didn't know how to reply for a moment.

"I'll be going to Nanjing around the end of the month. Brother, could you spare some time to come with me?"

He quickly changed the subject: "I'm going to talk to the Jiangning Development Zone about the details of the cooperation. You can go over there and finalize the construction arrangements as well."

"The end of the month?"

Fu Bin looked at his assistant, Shao Yujie: "What are my plans before the end of the month?"

"According to the original schedule, you were supposed to go to Zhengzhou at the end of the month."

Shao Yujie replied seriously, "President Wu has already contacted the local investment promotion department and needs you to come over to finalize the investment scale for the industrial park."

"Let's postpone it to the beginning of next month."

Fu Bin thought for a moment and said, "Make time for the end of the month. I want to accompany Brother Luo to Nanjing."

Whether it's true or false, since it's been brought up in the open, Luo Yang has to accept the favor.

"Brother, are you planning to establish a presence in the Central Plains?"

"Since you asked me to postpone my trip to Sichuan, I can only expand my business to the Central Plains."

Fu Bin smiled and said, "The North is the territory of China Happiness. If we want to go there, there will be considerable resistance. The Yangtze River Delta and Pearl River Delta regions are not very attractive to our model. After thinking it over, only the central and western regions have the greatest potential."

“From a geographical perspective, Zhengzhou is the best choice for establishing a presence in the Central Plains region.”

Luo Yang decided to use a piece of news to offset Fu Bin's favor: "But now is not the right time. I personally think it would be more appropriate to wait a year or two."

Fu Bin: "?"

Wu Siyuan: "?"

The two exchanged a glance, and then Wu Siyuan spoke up, asking, "President Luo, you said now is not the right time, why is that?"

Foxconn!

Because he planned to manufacture his own smartphones, Luo Yang had already started people paying attention to this industry, so he learned about this information.

"The world's largest smartphone contract manufacturer has finalized its plans to locate in Zhengzhou."

Luo Yang gave his answer: "If I'm not mistaken, Zhengzhou should have given all the preferential policies and support funds it could offer in the past year or two to this project. If Guotai enters now, it really won't get any real benefits."

Just like Hefei, the local government suffered for a year or two after introducing BOE.

(End of this chapter)