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Loans Payable
 12 Months Ended
Dec. 31, 2013
Loans Payable [Abstract]  
Loans Payable
(10) Loans Payable
 
Short-term bank loans
 
 
 
December 31,
 2013
 
December 31,
 2012
 
Industrial & Commercial Bank of China
(a)
$
-
 
  $
792,568
 
Industrial & Commercial Bank of China
(b)
 
-
 
 
1,585,138
 
Bank of Hebei
(c)
 
-
 
 
1,585,138
 
Industrial & Commercial Bank of China
(d)
 
4,090,180
 
 
-
 
Industrial & Commercial Bank of China
(e)
 
818,036
 
 
-
 
Industrial & Commercial Bank of China
(f)
 
1,636,072
 
 
-
 
Total short-term bank loans
 
$
6,544,288
 
$
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 $1,585,138 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 term of the factoring facility expired on November 8, 2013 and carried 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 Company paid off the principal balance and accrued interest under the factoring facility on November 8, 2013.
 
 
(c)
On September 19, 2012, the Company obtained from the Bank of Hebei a 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 expired on September 19, 2013. The Company paid off the loan balance on September 18, 2013.
 
 
(d)
On September 2, 2013, the Company entered into a working capital loan agreement with the ICBC for $4,090,180, with which $818,036 is payable on June 5, 2014 and $3,272,144 is payable on August 15, 2014. 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 provides 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 (11) for the related party transaction). Hebei Fangsheng is controlled by the Company’s Chairman and CEO Mr. Zhenyong Liu.
  
(e)
On September 6, 2013, the Company obtained a new accounts receivable factoring facility from the ICBC for $818,036. 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 provides 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.
  
(f)
On December 3, 2013, the Company obtained from the ICBC an accounts receivable factoring facility with a maximum credit limit of $1,636,072 as of December 31, 2013. 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 October 21, 2014 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 $1,636,072 as of December 31, 2013.

 
As of December 31, 2013 and 2012, there were secured short-term borrowings of $6,544,288 and $2,377,706, respectively, and unsecured bank loans of $nil and $1,585,138, respectively. The factoring facility was secured by the Company’s accounts receivable  in the amount of $3,272,528 and $2,836,335 as of December 31, 2013 and 2012, respectively.
 
As of December 31, 2013 and 2012, the Company had no unutilized credit facility for bank loans with the banks. The average short-term borrowing rates for the years ended December 31, 2013, 2012 and 2011 were approximately 6.68%, 7.82% and 6.38%, respectively.
 
Long-term loans from credit union
 
As of December 31, 2013 and 2012, loan payable to Rural Credit Union of Xushui County, amounted to $5,914,401 and $5,730,273, respectively.
 
On March 31, 2011, the Company entered into a three-year term loan agreement with Rural Credit Union of Xushui County for an amount that is $1,611,531 as of December 31, 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 December 31, 2013, the entire balance of the loan in the amount of $1,611,531 was presented as current portion of long-term loan from credit union in the 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 of $4,302,870 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 $21,901,456 as of December 31, 2013. Interest payment is due quarterly and bears a fixed rate of 0.72% per month. As of December 31, 2013, total outstanding loan balance was $4,302,870, with $49,082 becoming due within one year and presented as current portion of long term loan from credit union in the consolidated balance sheet.
 
Total interest expenses for the short-term bank loans and long-term loans for the years ended December 31, 2013, 2012 and 2011 were $828,157, $736,457 and $495,978, 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 December 31, 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$1.36 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 $12,296,639 as of December 31, 2013, which is net of its current portion in the amount of $8,264,795.
 
Total interest expenses for the sale-leaseback arrangement for the years ended December 31, 2013, 2012 and 2011 were $471,472, $nil and $nil, respectively.
 
As a result of the sale, a deferred gain on sale of leased equipment in the amount of $1,379,282 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 $25,993,677 as of December 31, 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 $7,502,794 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 $36,134,038 as of December 31, 2013.
 
The future minimum lease payments of the capital lease as of December 31, 2013 were as follows:
 
Year Ending December 31,
 
Amount
 
2014
 
$
9,327,690
 
2015
 
 
8,817,611
 
2016
 
 
4,218,050
 
 
 
$
22,363,351