China's Jilin Chemical Industrial Co is reassuring investors that the remaining investment in a 300,000-tonne ethylene project has been backed up sufficiently by bank credits. Deputy general manager Lu Qirong said the listed company would have to spend another 1.7 billion yuan (about HK$1.58 billion), including US$100 million in export credit, which had been secured, on four out of 11 facilities of the project. He reckoned Jilin would have to pay only about nine billion yuan, which would be funded by loans from the State Development Bank. The investment will be at the expense of the company's long-term debt-to-equity ratio, which stood at 63.5 per cent at the end of June, up 2.2 percentage points from December. Mr Lu expects the ratio will go higher. The H-share company gave the stock market an unpleasant surprise in March when it revealed cost over-runs of 4.7 billion yuan. This brought the total investment to 19.9 billion yuan, of which 7.25 billion yuan was taken up by Jilin and the remaining by its parent, Jilin Chemical Group Corp, for the other seven facilities. At the end of June, Jilin had invested 5.5 billion yuan and the parent 6.37 billion. Mr Lu said the parent last year was approved to issue 1.6 billion yuan worth of corporate bonds, of which only 800 million yuan had been issued. It had not decided whether it would issue the remaining corporate bonds, or fund the shortfall by bank loans. 'It depends on which means is cheaper,' he said. Holders of its corporate bonds were paid 15 per cent interest a year. Jilin on Monday announced a 30 per cent drop in interim profits to 338 million yuan, battered by higher crude oil costs and lower product prices. UBS Securities (Hong Kong) analyst Alex Fan expected Jilin would record lower profits in the second half than in the first six months, plagued by a one-month maintenance programme this month, start-up losses from its ethylene project and higher depreciation expenses. He expects Jilin's full-year earnings to be about 590 million yuan, down 21 per cent on the previous year. According to the firm's schedule, three facilities of the ethylene project will be in trial operations in the second half. Under international accounting standards, the trial period will be counted in relation to depreciation charges. This is different from Chinese practice which begins to calculate depreciation only when the facilities are in commercial operation. Mr Lu said the ethylene project carried an internal rate of return of 13 per cent and it would be profitable in 1998 when all facilities began commercial operations. He decline to speculate on when the listed company would acquire the other seven facilities from the parent. Jilin has an option to take them over before 2002, subject to shareholder approval.