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Loans Payable | 9 Months Ended
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Sep. 30, 2013
Loans Payable [Abstract] |
Loans Payable | (9) Loans Payable Short-term bank loans
|  |  |  | September 30, 2013 |  |  | December 31, 2012 |
Industrial & Commercial Bank of China |  | (a) |  | $ | - |  |  | $ | 792,568 |
Industrial & Commercial Bank of China |  | (b) |  |  | 1,628,824 |  |  |  | 1,585,138 |
Bank of Hebei |  | (c) |  |  | - |  |  |  | 1,585,138 |
Industrial & Commercial Bank of China |  | (d) |  |  | 814,412 |  |  |  | - |
Industrial & Commercial Bank of China |  | (e) |  |  | 4,072,059 |  |  |  | - |
Total short-term bank loans |  |  |  | $ | 6,515,295 |  |  | $ | 3,962,844 |
| (a) | On September 4, 2012, the Company refinanced with the Industrial & Commercial Bank of China (“ICBC”) an accounts receivable factoring facility with a maximum credit limit of $792,568 as of December 31, 2012. Under the factoring agreement, the bank has recourse against the Company if the receivables, which remain in the Company’s books at all times, are not fully collected. The factoring facility carried an interest rate of 6.6% per annum. The Company paid off the principal balance and accrued interest under the factoring facility on August 28, 2013.
| (b) | On November 9, 2012, the Company obtained from the ICBC another accounts receivable factoring facility with a maximum credit limit of $1,628,824 and $1,585,138 as of September 30, 2013 and December 31, 2012, respectively. Under the factoring agreement, the bank has recourse against the Company if the receivables, which remain in the Company’s books at all times, are not fully collected. The term of the factoring facility expires on November 8, 2013 and carries an interest rate of 6.6% per annum, or 1.0% plus the prime rate for the loan set forth by the People’s Bank of China at the time of funding. The unpaid balance of the loan was in the amount of $1,628,824 and $1,585,138 as of September 30, 2013 and December 31, 2012, respectively.
| (c) | On September 19, 2012, the Company obtained from the Bank of Hebei a new banking facility with maximum credit limit on bank loans of $1,585,138 and on notes payable of $1,585,138 as of December 31, 2012. The facility was guaranteed by an independent third party. On the same day, the Company drew down from this banking facility a new working capital loan of $1,585,138 as of December 31, 2012. The loan bore interest at the rate of 6.6% per annum. Both the term of the banking facility and loan were for one year and expire on September 19, 2013. The Company paid off the loan balance on September 18, 2013.
| (d) | On September 6, 2013, the Company acquired a new accounts receivable factoring facility from the ICBC for $814,412. Under the factoring agreement, the bank has recourse against the Company if the receivables, which remain in the Company’s books at all times, are not fully collected. The factoring facility will expire on August 4, 2014 and bears an interest rate of 110% of the primary lending rate of the People’s Bank of China and was at 6.6% per annum at the time of funding.
Concurrent with the signing of the new factoring agreement, the Company also entered into a financial service agreement with ICBC, which will provide accounts receivable management services to the Company during the terms of the underlying factoring facility. The factoring facility is personally guaranteed by the Company’s Chairman and CEO Mr. Zhenyong Liu.
| (e) | On September 2, 2013, the Company entered into a working capital loan agreement with the ICBC for $4,072,059, with which $814,412 is payable on June 15, 2014 and $3,257,647 is payable on August 15, 2014. However, ICBC has rights to prematurely call the entire balance of the loan depending on the financial or collection condition of the Company any time before the maturity date. The loan bears an interest rate of 115% over the primary lending rate of the People’s Bank of China and was at 6.9% per annum at the time of funding.
Concurrent with the signing of the working capital loan agreement, the Company also entered into a trust agreement with the ICBC, which will provide trust account management services to the Company during the terms of the underlying loan. The working capital loan is guaranteed by Hebei Fangsheng Real Estate Development Co. Ltd. (“Hebei Fangsheng”) with the land use right on our Headquarters Compound pledged by Hebei Fangsheng as collateral for the benefit of the bank. The land use right on our Headquarters Compound was acquired by Hebei Fangsheng from the Company on August 9, 2013 (see Note (10) for the related party transaction). Hebei Fangsheng is controlled by the Company’s Chairman and CEO Mr. Zhenyong Liu. As of September 30, 2013 and December 31, 2012, there were secured short-term borrowings in the amounts of $6,515,295 and $2,377,706, respectively, and unsecured bank loans in the amount of $nil and $1,585,138, respectively. The factoring facilities were secured by the Company’s accounts receivable in the amount of $2,476,418 and $2,836,335 as of September 30, 2013 and December 31, 2012, respectively. As of September 30, 2013 and December 31, 2012, the Company had no unutilized credit facility with the banks. The average short-term borrowing rates for the nine months ended September 30, 2013 and 2012 were approximately 6.62% and 8.28%, respectively. The average short-term borrowing rate for the three months ended September 30, 2013 and 2012 were approximately 6.65% and 8.46%, respectively. Long-term loans from credit union As of September 30, 2013 and December 31, 2012, loan payable to Rural Credit Union of Xushui County amounted to $5,888,198 and $5,730,273, respectively. On March 31, 2011, the Company entered into a three-year term loan agreement with the Rural Credit Union of Xushui County for an amount that is $1,604,391 as of September 30, 2013 and $1,561,361 as of December 31, 2012. The loan is guaranteed by an independent third party. Interest payment is due quarterly and bears the rate of 0.72% per month. As of September 30, 2013, the entire balance of the loan in the amount of $1,604,391 was presented as current portion of long-term loan from credit union in the condensed consolidated balance sheet. On June 10, 2011, the Company entered into a term loan agreement with the Rural Credit Union of Xushui County for an amount that was $4,168,912 as of December 31, 2012. Interest payment is due quarterly and bears the rate of 0.72% per month. The loan is secured by its manufacturing equipment of $9,316,645 as of December 31, 2012, and became matured on June 9, 2013. On July 26, 2013 the Company paid off the unpaid principal balance and accrued interest. On July 15, 2013, the Company entered into a new agreement with the Rural Credit Union of Xushui County for a term of 5 years, which is due and payable on various scheduled repayment dates between December 21, 2013 and July 26, 2018. The loan is secured by certain of the Company’s manufacturing equipments in the amount of $22,439,622 as of September 30, 2013. Interest payment is due quarterly and bears a fixed rate of 0.72% per months. As of September 30, 2013, total outstanding loan balance was $4,283,807, with $32,577 becoming due within one year and presented as current portion of long term loan from credit union in the condensed balance sheet. Total interest expenses for the short-term and long-term loans for the three months ended September 30, 2013 and 2012 were $207,807 and $185,495, respectively. Total interest expenses for the short-term and long-term loans for the nine months ended September 30, 2013 and 2012 were $592,184 and $543,468, respectively. Financing with Sale-Leaseback The Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with China National Foreign Trade Financial & Leasing Co., Ltd ("CNFTFL") on June 16, 2013, for a total financing proceeds in the amount of RMB150 million (approximately US$24 million). Under the sale-leaseback arrangement, Orient Paper HB sold certain of its paper manufacturing equipment (the “Leased Equipment”) to CNFTFL for an amount of RMB 150 million (approximately US$24 million). Concurrent with the sale of equipment, Orient Paper HB leases back all of the equipment sold to CNFTFL for a lease term of three years. At the end of the lease term, Orient Paper HB may pay a nominal purchase price of RMB 15,000 (approximately $2,400) to CNFTFL and buy back all of the Leased Equipment. The sale-leaseback is treated by the Company as a mere financing and capital lease transaction, rather than a sale of assets (under which gain or loss is immediately recognized) under ASC 840-40-25-4. All of the Leased Equipment are included as part of the property, plant and equipment of the Company’s as of September 30, 2013; while the net present value of the minimum lease payment (including a lease service charge equal to 5.55% of the amount financed, i.e. approximately US$1.35 million) was recorded as obligations under capital lease and was calculated with CNFTFL’s implicit interest rate of 6.15% per annum and stated at $25,750,170 at the inception of the lease on June 16, 2013. The balance of the long-term obligations under capital lease was $16,322,070 as of September 30, 2013, which is net of its current portion in the amount of $8,245,818. Total interest expenses for the sale-leaseback arrangement for the three months ended September 30, 2013 and 2012 were $114,041 and $nil, respectively. Total interest expenses for the sale-leaseback arrangement for the nine months ended September 30, 2013 and 2012 were $174,495 and $nil, respectively. As a result of the sale, a deferred gain on sale of leased equipment in the amount of $758,257 was created at the closing of the transaction and is presented as a non-current liability. The deferred gain would be amortized by the Company during the lease term and would be used to offset the depreciation of the Leased Equipment, which was recorded at the new cost of $25,878,515 as of September 30, 2013. As part of the sale-leaseback transaction, Orient Paper HB entered into a Collateral Agreement with CNFTFL and pledged the land use right in the amount of approximately $7,508,189 on some 58,566 square meters of land as collateral for the lease. In addition to Orient Paper HB’s collateral, Orient Paper Shengde also entered into a Guarantee Contract with CNFTFL on June 16, 2013. Under the Guarantee Contract, Orient Paper Shengde agrees to guarantee Orient Paper HB’s performance under the lease and to pledge all of its production equipment as additional collateral. Net book value of Orient Paper Shengde’s asset guarantee was $36,667,728 as of September 30, 2013. The future minimum lease payments of the capital lease as of September 30, 2013 were as follows:
Year Ending September 30, |  | Amount |
2014 |  | $ | 9,412,972 |
2015 |  |  | 8,905,152 |
2016 |  |  | 8,398,028 |
|  | $ | 26,716,152 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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