10. BORROWINGS AND OTHER FINANCING ARRANGEMENTS

 

a) Bank borrowings

 

The Company’s bank borrowings consist of the following:

 

 

As of December 31, 2016, long-term borrowings of $28,835,700 was joint guaranteed by two subsidiaries of the Company.

 

i) Short-term

 

 

ii) Long-term

 

 

All the principals of the long-term bank loans should be repaid in 2020 as illustrated in the table below:

 

 

b) Financings associated with failed sale-lease back transactions

 

In 2017, certain subsidiaries of the Company (“seller-lessee”) sold material of self-built solar projects (“leased assets”) with carrying amount of $ 33,753,639 to different domestic financial leasing companies (“buyer-lessors”) for cash consideration of $ 39,535,563 and simultaneously entered into the contracts to lease back the leased assets from the buyer-lessors for 5 to 10 years. These arrangements are guaranteed by other subsidiaries of the Company and also pledged by the shares and rights for the future power generation income of the seller-lessee. Pursuant to the terms of the agreements, seller-lessee is required to pay to the buyer-lessors lease payment over the lease period and is entitled to obtain the ownership of these equipment at a nominal price upon the expiration of the lease.

 

As the leased assets are considered integral with real estate under ASC 360, the sale-leaseback rules related to real estate are applied. The lease transactions do not qualify as a sale-leaseback transaction as these solar projects are initially invested and build up by seller-lessee with expected useful life of 25 years, and are continuingly maintained by seller-lessee. Seller-lessee has an obligation to repurchase the leased assets upon the expiry of the lease. In addition, after the lease period, seller-lessee will keep using the assets and has no plans to sell or early-disposal.

 

Accordingly, these transactions are accounted for as financing transactions in accordance with ASC 840. Internal rate of return is used in the computation of interest cost. The assets remain in the PPE and continue to be depreciated.

 

As of December 31, 2017, the Company recorded $ 38,575,716 under long-term borrowings and $ 1,638,904 as current portion which represents principal to be paid in the next year. The weighted average effective interest rate of the financing was 6.07% and interest costs incurred during the year ended December 31, 2017 were $ 836,959. These sale-leaseback financings were collateralized by material of solar projects.

 

c) Capital lease

 

In 2017, the Company leased module, inverter and other materials from different domestic financial leasing companies. Pursuant to the terms of the contract, the Company is required to pay to the finance lease companies lease payments and is entitled to obtain the ownership of these machinery and equipment at a nominal price upon the expiration of the lease. These arrangements are guaranteed by other subsidiaries of the Company and also pledged by the shares and rights for the future power generation income of the leases. The lease is classified as capital lease. As of December 31, 2017, the carrying amount of the material related to this capital lease contract is $ 32,994,934, and is included in PPE that is being depreciated over lives of 25 years and the payable related to this contract is $ 29,298,799.

As of December 31, 2017, the net value of the leased assets are:

 

 

As of December 31, 2017, future minimum payments required under the capital lease are:

 

e) Interest expense

 

Interest expense incurred for the years ended December 31, 2017 was $ 4,045,277, of which $ 108,975 has been capitalized in the carrying value of PPE.