Upload
trinhanh
View
218
Download
0
Embed Size (px)
Citation preview
The Fuqua School of Business at Duke University
FUQ-04-2010
Rev. April 30, 2010
Autopista Central, S.A.
The Valuation of a Toll Road Project in Chile
Manuel Flores arrived to his office in Madrid on Monday after a relaxing weekend spent with his family. It was mid-November 2007 and Flores, senior vice-president of Business Development for the Spanish construction and services company ACS, had spent the last three weeks visiting ACS project sites in Latin America. Upon his return to Spain, he had had gone to a three-day infrastructure and project finance conference in Majorca where many of the most important players in the industry had been in attendance.
At the conference Flores was approached by Juan Albán from the toll-road and airport
operator Abertis and Sergio Sandoval from the private equity arm of Santander Bank who had an interesting proposition for him. Specifically, Albán and Sandoval expressed considerable interest in jointly buying ACS’ stake in a 61 kilometer toll-road that the firm had constructed and was now co-operating in the Chilean capital of Santiago. ACS had a 48% equity stake in this venture known in Chile as Autopista Central or “Central Highway” which had received investment of more than USD 800 million by 2007.
Although some had recently begun to speculate that world asset prices had reached a peak,
companies like Abertis and Santander still had appetite for infrastructure projects that they viewed as being relatively safe investments. Flores, Albán, and Sandoval had had a series of informal meetings regarding Autopista Central at the conference in which the group decided that Flores would discuss the idea of a sale of ACS’ stake with the firm’s CEO, Florentino Pérez, as soon as possible. Regardless of Pérez’s and the Board’s decision regarding a potential sale of the asset, Flores knew he and his team would have to spend the next few weeks valuing the toll-road.
As Flores sat down at his desk in Madrid, he pondered a major question regarding the
valuation ahead of him. Specifically, how should he determine the project’s cost of capital in a market where limited access to reliable information and the presence of market inefficiencies violate many of the assumptions of the Capital Asset Pricing Model? Given the size of the potential deal, he would have to travel to Chile to better assess the risks that he should include in his discount rate. He knew he could not falter with two big players like Abertis and Santander and he sighed as he picked up the phone to call his wife to tell her that their family vacation would have to be postponed for another two weeks.
This case was prepared by David Keller, Belisario Galarcep, Massimo Paone, and Javier Vilardell for the course Advanced
Topics in Corporate Finance under the supervision of Professor Campbell R. Harvey and was written as a basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Copyright © 2010 - all rights reserved. The Fuqua School of Business, Duke University, 1 Towerview Drive, Durham, NC 27705, USA. http://faculty.fuqua.duke.edu/~charvey/Cases/index.htm .
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
2
Chile: A Brief History
Prior to the arrival of the Spanish in 1536, present day Chile was inhabited by around
500,000 indigenous people who lived in a series of interconnected villages throughout the country.
The Spanish effectively annexed the territory in 1540 and in this year established the present day
capital of Santiago. From Santiago the Spanish managed their economic and political interests in
Chile. The colony never was as profitable as some other Spanish colonies in Latin America such as
Peru or Mexico and the Spanish crown remained largely disinterested in Chile until the late 18th
century.
As was the case in many Latin American colonies, the people of Chile grew tired of Spanish-
imposed rules and regulations and formally declared independence on September 18, 1810. Actual
independence was not achieved until 1818 upon which the country descended into a brief period of
relative anarchy.
In 1879 a conflict with Chile’s neighbors to the north, Bolivia and Peru, over the ownership
and development of nitrate reserves led to a war between Chile and the two nations (see Exhibit 1
for a map of the region). Chile was victorious in the conflict and took control of a large swath of
Bolivian and Peruvian territory that resulted in an increase of Chile’s territory by one-third. In the
exchange, Bolivia lost all of its coastal territory and Peru lost the maritime rights over rich fishing
waters, events that continue to be a source of considerable Bolivian and Peruvian resentment with
Chile even today.
After the War of 1879, Chile entered into a period of considerable economic expansion led
by growth in its mining and manufacturing industries. Much of this development was made possible
by foreign loans and a state-run economy that permitted the rise of an urban middle class. The
centrally controlled economy was unable to transition to the trend towards market-based reforms
that began in the early 1900’s and consequently the country experienced flat economic growth and
periods of high inflation during this time. In 1964, Eduardo Frei of the center-left Christian
Democratic Party (PDC) won the presidency and initiated a series of radical reforms including
agrarian reform and the nationalization of many of the country’s copper mines.
Following a particularly acute recession that began in 1967, Chile elected the socialist
Salvador Allende of the Popular Unity Party (UP) in 1970 in a hotly contested election against the
U.S.-favored Conservative Party candidate, Jorge Alessandri. Upon taking control, Allende
nationalized many of the country’s businesses and banks and instituted a series of reforms aimed at
redistributing wealth to the lower classes. As a result, foreign and national investment in Chile dried
up and the nation became very polarized between the left and the right. Some on the right called for
open military intervention to remove Allende and received support from the U.S. who, under the
back drop of the Cold War, was interested in thwarting any resemblance of communism in the
Western Hemisphere.
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
3
On September 11, 1973, a military coup led by the commander-in-chief of the Chilean
military, General Augsto Pinochet, and the covert support of the U.S., removed Allende from power
in an attack on the presidential palace in which Allende took his own life. Under Pinochet all
political activities were suspended and a brutal campaign to eliminate all left-wing opposition was
undertaken. Pinochet declared a permanent state of emergency in which congress was dissolved and
all left-wing parties were banned. Over the following 15 years, more than 2,000 people were killed
by the Pinochet regime while thousands more were arrested or tortured. During this period the
government’s role in the management of the economy was drastically reduced as the regime
privatized most industries even though it maintained strict control over any political activities.
The beginning of the 1980’s saw the Pinochet regime gradually permitting more free speech,
freedom of assembly, and political associations which eventually set the stage for a 1988 national
referendum on the future of Pinochet’s rule. Pinochet lost the referendum and respected the
results. Chileans then elected Patricio Alywin of the PDC party in 1989 who would go on to govern
Chile in a transition government from 1990 to 1994. All post-Pinochet presidents of Chile, Eduardo
Frei (1994-2000), Ricardo Lagos (2000-06), and the current president, Michelle Bachelet have been
affiliated with a center-left association of parties known as the Concertación or “The Agreement”1.
Chile: The Economy
Chile averaged 4.4% real GDP growth between 2002 and 2006. Such steady and robust
growth was partially facilitated by the introduction of a broad reaching fiscal reform in 2000. This
reform reduced the volatility of GDP growth. Real GDP rose from a 2.2% rate in 2002 to 3.9% in
2003, averaged 5.9% in 2004-05, and then fell to 4% in 2006. Starting in about 2003, soaring global
demand and the resulting increase in commodities prices boosted the Chilean economy. In addition,
relatively cheap and available worldwide credit contributed to significant increments in investment in
Chile. Notwithstanding a robust growth in exports, between 2003 and 2007 the contribution to
growth from the external sector resulted in a negative balance of trade as private consumption grew
steadily as a consequence of higher levels of employment and a stronger local currency. The
country’s GDP decreased in 2006 mainly due to a one month strike at the world’s largest copper
mine (Chile is the world’s largest producer of copper having around 1/3 of total world reserves). At
the same time, growth was hampered by rising energy costs due to a unilateral cut in Chile’s gas
supplies by its neighbor, Argentina. On the supply side, the most dynamic economic sectors until
2006 were communications, financial services, and agriculture and forestry. In 2007 GDP was on
track to grow around 5% even in light of tighter monetary policy implemented by the government
that was aimed at dampening private consumption.
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
4
Chile: Monetary Policy
The independent Banco Central de Chile (The Central Bank - BCC) manages the monetary
policy of Chile and has reached an international degree of credibility. The BCC’s main aim is to
keep inflation at 3% - with a one percentage point margin of error - over a two-year horizon. A
liberalization of the exchange regime of the country’s currency, the Chilean Peso, was pursued in the
1990s and was finalized in 2001. To further support the Peso, the BCC has a good track record of
providing liquidity to the market and ironing out excessive daily volatility. In a move away from
inflation adjusted interest rates, in July 2001 the BCC adopted a nominal target interbank rate of
6.5%. The previous real interest rate was 3.5% and was based on an underlying inflation of 3%.
The new 6.5% nominal rate improved the quality of the monetary policy which is now better aligned
with international interest rate movements. In a situation of low inflation and global expansion, the
interbank rate went down to an unprecedented low of 1.75% by the end of 2004. Subsequent
inflationary pressures led the BCC to tighten monetary conditions raising the interbank rate to
5.25% in 2006.
Chile: Transportation Infrastructure
Chile has good transport infrastructure and a large highway coverage which connects the
whole country with the exception of the Magallanes region. The road network has undergone
substantial improvement since 1990, with the privatization of the construction and maintenance of
commercially viable roads through build-operate-transfer (BOT) concessions. This policy has
yielded a modern motorway network between La Serena and Puerto Montt, the area where over
90% of Chileans live.
BOT concessions are also being used to build urban toll roads in Santiago, Valparaíso and
Concepción. Chile's Ministry of Public Works (MOP) has asked highway concessionaires to submit
proposals to integrate toll systems in order to expand the toll road network through the rest of the
country. Currently in Santiago drivers are tolled through the use of a free-flow electronic system
that allows toll collection to take place without the delays and safety hazards created by traditional
toll booth facilities. In Santiago, the pending Costanera Norte toll road and Autopista Central will
together form the first 'smart' toll road system of its kind in the region. Taking advantage of the
concession practice and project finance, the government has consequently been able to focus on
upgrading secondary, unpaved roads, while constructing new ones. It aims to increase the network
of paved roads to 25,000 Km by the end of 2010.
Chile: Santiago
With an urban population of nearly seven million people, Santiago is by far the largest city in
the country. Chile’s sustained economic prosperity has enabled the city to become one of Latin
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
5
America’s most modern metropolitan areas. Santiago is home to a number of foreign and Chilean
multinational companies who often use the city as a base for other South American operations. The
area contains approximately 40% of Chile’s total population and accounts for nearly 43% of
domestic GDP.2
The metropolis is located in a large, bowl-shaped valley surrounded by a number of
volcanoes. Although most of the volcanoes surrounding Santiago are inactive, a few of them
periodically erupt and give the city a light dusting of ash. The whole country of Chile lies along the
fault line formed by the Nazca and South American tectonic plates. As a result, the country has
frequent temblors and occasional earthquakes. An earthquake that registered 8.0 on the Richter
magnitude scale affected Santiago on March 3, 1985 killing 177 people and destroying 142,489
houses3. An earthquake of this level of devastation had not been registered since 1985.
Santiago has a continental Mediterranean climate which is characterized by a six month rainy
season followed by a six month dry season. Roughly 80% of the city’s precipitation falls from the
months of May to September. Storms with steady and prolonged rainfall during May and June can
cause low-scale flash flooding in different sectors of the city as storm drains struggle to discharge
rainwater.
Around 800,000 vehicles use the roads on any given workday in Santiago which represents
nearly 43% of all of the total number of vehicles registered in the country.4 Santiago is composed of
a series of complex streets that are overlaid by three inter-urban highways that connect the extremes
of the city; the Vespucio highway surrounds the city, Autopista Central traverses the city from North to
South, and the soon to be completed Costanera Norte will connect the Eastern side of the city with
the Western side and provide easier access to the city’s international airport.
In addition to highways as a means of mobilization, Santiago has South America’s most
extensive subway system. In February of 2007, Santiago’s much touted TranSantiago public transport
system was launched. The system, which consists of more than 8,000 buses, aims to serve as a
feeder for the constantly growing Santiago subway system. TranSantiago’s first few months were
marred by a series of problems owing to the design and implementation of the system that led to
street protests. Consequently, President Bachelet has made the resolution of TranSantiago’s problems
a top priority for her administration.
Autopista Central: Project Background
In 1993 the Chilean government unveiled the Public Works Concession System (PWCS) as a
means of providing the legal framework and economic incentives to modernize Chile’s national
infrastructure. As a result of the PWCS, over 50 infrastructure projects were developed between
1993 and 2007 with private investment in these projects totaling more than $8 billion.
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
6
The concept for Autopista Central, or “Central Highway” in Spanish, was first devised in 1995
as part of the country’s round of urban projects known as the First Urban Concession Program.
The proposed highway system, known as the “North-South System” at the time, had the objective
of upgrading the city of Santiago’s North-South road network through six high-standard highways
that would run through the main transportation corridor of the city. To minimize traffic congestion,
the government wanted the system to be operated by means of a modern free-flowing tolling system
that would allow vehicles to enter and exit without having to stop at tollgates.5 A diagram of the
completed highway system can be found in Exhibit 2. The system was to be part of an integrated
system of five highway concessions that have been awarded to private sector consortia in the
Santiago area worth a total of $ 15 billion.
The design and approval process of the plans to build the proposed North-South System
took more than five years. Such time was inevitable given the large number of engineering and urban
planning concerns that the project would confront upon building 61 kilometers of roads and
accompanying infrastructure through a tangled urban jungle. Amongst other works, the project
involved the construction of 106 bridges, 28 km of concrete walls, and 2,636 meters of cut- and
cover-tunnels, all of which are designed to withstand strong earthquakes that are typical of the
region (see Exhibit 3 for a description of the scope of the work).
In January 2001, the Chilean Ministry of Public Works awarded the North-South project
construction and subsequent operation to a consortium of companies called Sociedad Concesionaria
Autopista Central, SA (Autopista Central). The concession awarded by the government was for a
period of 30 years with the final works of the project to be completed by 2007. Construction of the
project was done in phases and completed eight months ahead of schedule in April of 2007 and, per
the concessionary agreement, routine maintenance is performed by Autopista Central as needed. The
first tolls of Autopista Central were collected on December 1, 2004 and the system became fully
operational in May 2006.
Autopista Central was formed and is controlled by a group of construction and project
developers including the Spanish company Actividades de Construcción y Servicio, SA (ACS), the Swedish
company Skanska AB (Skanska), and the Chilean companies Empresa Constructora Belfi, SA (Belfi) and
Empresa Constructora Brotec, SA (Brotec). See Exhibits 4a and 4b for a detailed breakdown of each
company’s stock ownership in Autopista Central.
Finally, it was noted that, although Autopista Central was one of a kind, the sale of such an
asset was reasonably undertaken in Chile and that there was a fair number of multinational
counterparties that might be interested in such a project.
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
7
Owners: ACS
ACS is a Spanish construction and civil engineering firm which specializes in the building of
infrastructure projects throughout the world. The company was formed at the end of 1997 as a
result of a merger between two well-established Spanish construction companies. ACS is
headquartered out of Madrid and has operations in 42 countries throughout the developed and
developing worlds. The firm has leveraged the cultural and language of Spain to establish a strong
presence in 15 countries in the Latin America region (see Exhibit 5 for a list of countries where
ACS has operations).
ACS has experienced exceptional growth since recording 1998 revenues of $2.5 billion (€ 2.5
billion)6. In 2006 the company recorded revenues of $18.3 billion (€ 14.1 billion), net income of
$1.6 billion (€ 1.3 billion), and had a market capitalization of $19.6 billion (€ 15.1 billion) as of
December 31, 20067. The year 2007 was characterized by a continuation of historically low global
interest rates and seemingly limitless liquidity (see Exhibit 7 for a graph historical USD LIBOR
rates). As a result, the construction sector and ACS were on track for a record year in 2007. Early
company projections estimated the firm’s 2007 annual revenues to be on the order of $31 billion
(€ 21 billion) (see Exhibit 6 for historical financials of ACS).
The company’s CEO was the well-known Spanish businessman Florentino Pérez. Mr. Pérez
is perhaps most well known in the popular press for being the President of the Real Madrid football
club from 2000-06 during which he paid extremely high transfer fees to bring some of the world’s
most elite football players to the club. ACS’s shares are listed on the Madrid Stock Exchange with
the public float of its shares comprising 51.5% of the company (see Exhibit 8 for a list of ACS’
shareholders).
Owners: Skanska
Skanska was originally founded under the name Aktiebolaget Skånska Cementgjuteriet in the year
in 1887 in the city of Malmö, Sweden. The company initially only produced concrete products but
quickly expanded into the construction industry and is credited with building many of Sweden’s
biggest infrastructure projects over the last century. With headquarters in Stockholm, the company
now operates in South America, Africa, the U.S., and Asia building projects in the areas of roads,
power plants, office buildings, and residential housing.8
Shares of Skanska trade on the Stockholm Stock Exchange (OMX) and are widely held by
pension funds as well as the public (see Exhibit 9 for a list of Skanska’s shareholders). In 2006, the
company recorded revenues of $17.0 billion (SEK 125.6 billion) and $0.7 billion (SEK 5.0 billion) in
Net Income.9 Early estimates indicate that the company will generate $20.5 billion (SEK 138.8
billion) in revenues in 2007 translating into approximately $0.8 billion (SEK 5.7 billion) in total net
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
8
income.10 In November of 2007 the company’s market capitalization was $8.0 billion (SEK 51.1
billion).
Buyers: Abertis Infraestructuras, SA (Abertis)
Headquarted in Barcelona, Abertis specializes in the management and operation of toll roads
and airports. The company’s stock is listed on the Madrid Stock Exchange and in 2006 Abertis
reported revenues of $4.2 billion (€ 3.2 billion) with net income of $0.7 billion (€ 0.5 billion).
Abertis was benefitted favorably by the economic conditions of 2007 and was on track to produce
$5.2 billion (€ 3.5 billion) in revenues and nearly $1.0 billion (€ 0.7 billion) in net income in the same
year.
The company operates over 6,500 kilometers of toll roads in Europe as well as more than a
dozen airports in cities including London, Stockholm, and Orlando.11 In Chile, Abertis has a well
established presence. In the highway arena, the company already operates two large toll roads. In
addition, Abertis operates the Santiago airport and a handful of parking lots and logistics parks in
the country.12 Abertis saw Autopista Central, a highway that was estimated to be used at least once a
month by 65% of the vehicles in the Santiago metropolitan region13, as an asset that would be highly
complementary to its current infrastructure portfolio in Chile.
Buyers: Santander Bank (Santander)
At the beginning of 2007, Santander was the world’s 12th largest bank as measured by total
market capitalization.14 The bank’s head office is located in Santander, Spain but its shares are
traded globally. Stock in Santander is publically traded on exchanges in Madrid, Milan, New York,
Lisbon, Buenos Aires, Mexico City, and London reflecting the bank’s heavy influence in Europe and
Latin America. In 2006 Santander recorded revenues of $69.4 billion (€ 53.4 billion) and net income
of $7.9 billion (€ 6.0 billion). Record liquidity in the financial system and customer demand for
cheap and plentiful credit were combining to make 2007 the best year in Santander’s 150 year history
as a company. The bank estimated 2007 revenues would approach $90.8 billion (€ 62.2 billion)
resulting in $11.4 billion (€ 7.8 billion) of net income.
In Chile, Santander is the largest bank in terms of total assets, loans, and shareholder’s
equity. Santander established a presence in Chile in 1982 when it acquired Banco Español Chile. The
bank has experienced strong growth since then and now serves both corporate and retail clients with
a wide variety of services from checking accounts and consumer loans to sophisticated investment
banking advisory and investment management.15
Santander Private Equity (SPE) is the private equity unit of Santander’s Asset Management
group and has been in operation since 2004. SPE specializes in infrastructure funds and fund of
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
9
funds which offer risk adjusted returns to investors.16 In 2004, SPE raised a $228 million (€ 185
million) infrastructure fund called Santander Infraestructuras I (SI 1) which invested in a select number
of infrastructure projects. The fund sought to benefit from investing in projects that had
government support in Europe and Latin America such as roads, ports, and water systems.
Investment in SI 1 was oversubscribed and generated a solid return and Santander soon starting
planning a second infrastructure fund, Santander Infraestructuras II (SI 2). SI 2’s equity target was $2.1
billion (€ 1.5 billion) with the bank estimating its own contribution at 10% of the total and by the
end of December 2007 the SPE had already lined up $500 million (€ 857 million) in limited-partner
commitments. Although SPE had not raised the total of amount of equity for the SI 2, the group
was looking to invest in its first projects which could then be passed to the new fund upon reaching
the targeted equity level. Given its knowledge of the Chilean market, Autopista Central was exactly
the kind of project that Santander wanted to add to its portfolio which it hoped to do at an attractive
price.
The Capital Structure of Autopista Central
In November of 2003, before construction on Autopista Central had initiated, the consortium
of owners prepared a schedule of the sources and uses of funds that they estimated the project
would require (see Exhibit 10).
The schedule initially called for USD 552 million in public bonds but this number would
eventually rise to USD 603 million when the project’s bonds were finally placed in December of
2003. The 23-year, fixed-rate bonds were eventually placed in both the local market as well in the
US given the relative costs of each market, the currency denomination of the toll road’s revenue, and
the local bond market’s capacity for debt issues. The local bonds (equivalent to USD 353 million in
December 2003) were issued in an inflation indexed currency called Unidades de Fomento (UF) or
“Development Units” the exchange rate of which was published relative to the Peso (CLP) on a
daily basis by the BCC. The bonds placed in the US totaled USD 250 million and were sold mostly
to institutional investors via a private placement. See Exhibit 11 for the details and the
characteristics of each bond issue and Exhibit 12 for historical CLP/UF and CLP/USD exchange
rates.
In addition to the CLP 58 billion (roughly USD 87 million) of equity that investors
capitalized Autopista Central with, the consortium also contributed subordinated debt to the project.
By late 2007, Autopista Central’s subordinated debt totaled roughly USD 125 million which was
equally contributed between ACS and Skanska. The subordinated debt allowed the consortium to
achieve favorable fiscal benefits when repatriating profits from the project and, although this
investment was technically not equity, ACS and Skanska treated it as such for cost of equity
purposes.
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
10
Financial Projections of Autopista Central
Autopista Central had experienced a significant ramp up in revenues and profits over the ast
year as many of the toll road’s pending sections came on line and consumers become more
accustomed to utilizing the new “free flow” tolling system. After a few days of working with his
colleagues in Chile, Flores was able to put together the financial projections included in Exhibit 16.
The projections incorporated the fact that the consortium’s concession with the government would
end in 23 years upon which the owners would liquidate any remaining owner’s equity in the venture.
The assumptions that were used in the projections are included in Exhibit 17.
Debating the Calculation of the Cost of Equity Capital
Flores had many alternatives to select from when choosing how to calculate the appropriate
cost of capital for the Autopista Central project and thus the value of ACS’ stake in the partnership.
One possibility was the use of method based on the Capital Asset Pricing Model (CAPM).
Unfortunately, the use of the CAPM was not so straight forward in an emerging market like Chile
and given some of the unique idiosyncratic risks that the toll-road project presented. For example,
Flores knew that he did not want to use the same corporate cost of capital that was used by ACS
headquarters to evaluate projects that the company built in Spain. By using this Identical Cost of
Capital method, Flores would assign too low of a discount rate to the project’s cash flows thereby
arriving at a price that would be unrealistically high and undoubtedly unpalatable for both Abertis
and Santander.
Alternatively, some multinational firms advocate the use of a World CAPM methodology to
calculate discount rates. In the World CAPM, managers use historical returns on local debt and
equity markets as well as the returns generated by comparable local firms and industries as the inputs
for the CAPM to produce a local cost of capital. Unfortunately, this technique erroneously assumes
that all markets are integrated (i.e., no inefficiencies) which is clearly not the case for most emerging
economies. As a result of the inefficiencies present in these markets such as regulatory and tax
barriers, limited historical information, undiversified or non-existent equity markets, and illiquidity,
the inputs of the World CAPM are largely rendered insignificant and therefore make use of this
approach infeasible.
Flores recognized that the Chilean market could be considered one of the most integrated
emerging economies in the world and therefore thought about using a Modified World CAPM
approach which adjusts the cost of equity capital obtained in the traditional CAPM by a country
equity risk premium (CRP) to account for the inherently higher risk associated with operating a
business in Chile.
One such modified CAPM method that Flores had considered using was that of Aswath
Damodaran. With Damodaran’s technique, the CRP is weighted by a factor, lambda, to recognize
that not all businesses and projects are equally affected by sovereign risks. 17 The most practical
manner to calculate lambda is to divide the percentage of revenues that the firm derives locally by the
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
11
average percentage of revenues that a firm in the same industry derives locally. By the end of 2007,
Damodaran estimated the CRP of Chile to be 2.10%.18
Flores recognized, however, that Abertis and Santander would not likely agree on using the
Damodaran modified CAPM model. Specifically, the Damodaran method would most certainly
yield the lowest Weighted Average Cost of Capital (WACC) for the project and therefore the highest
valuation. He knew that the prospective buyers would most certainly seek a model that would
generate a higher cost of capital by capturing some of the specific project-level risks associated with
the Autopista Central.
In particular, he had gotten wind that a couple of associates at Abertis and Santander had
recently been using a cost of capital methodology they had picked up while taking an MBA course
at Duke University’s Fuqua School of Business. The method was based on a research article published
by Erb, Harvey, and Viskanta in the Journal of Portfolio Management in 199519 which showed that the
monthly country credit ratings published by Institutional Investor magazine are good ex-ante measures
of country risk. That Institutional Investor credit ratings are good proxies of sovereign risk is quite
intuitive given that the ratings encompass – to varying degrees – risks such as political risk rating
(including government stability, socioeconomic conditions, investment profile, internal conflict,
external conflict, corruption, military in politics, religion in politics, law and order, ethnic tensions,
democratic accountability, and bureaucratic quality), financial risk rating (including foreign debt as a
percentage of GDP, foreign debt service as a percentage of export of goods and services, current
account as a percentage of exports of goods and services, net international liquidity as months of
import cover, and exchange rate stability), and economic risk rating (including GDP per capita, real
GDP growth, annual inflation rate, budget balance as a percentage of GDP, and current account as
a percentage of GDP)20.
Based on their findings, the researchers went on to develop a cost of capital model that
utilizes Institutional Investor credit ratings of the country being evaluated as well as that of the US, the
US risk-free rate, the US market-risk premium, the yield spread or sovereign spread of the country being
evaluated, and the Beta (β) of the industry in which the project or company operates in.
Furthermore, the model permits Flores to make a series of adjustments to account for the project’s
incorporation or lack of certain risk mitigating factors (see the Erb, Harvey, Viskanta Cost of Capital
Calculator in the accompanying Microsoft Excel spreadsheet
<<Autopista_supplementary_spreadsheets.xls>>). Flores felt that by using this model he
would be able to determine the likely price range that Abertis and Santander would be seeking for
ACS’ stake in Autopista Central.
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
12
Qualitative and Quantitative Inputs for the Erb-Harvey-Viskanta Cost of Capital Model
Currency Risk
The currency risk for Chile is very low as the fluctuation range against the US dollar in the
past five years has been moderate. The stability of the Chilean Peso has also been helped by a more
than reputable Chilean Central Bank and its monetary policy dedicated to control inflation level and
by a political environment that has facilitated the growth of Chilean democracy through the ability
of achieving the goals of the declared policies. In addition, there is a popular approval and
satisfaction with the government’s policies. This increases the quality of socioeconomic conditions
and consequently the country’s stability.
Expropriation Risk
Based on the high level of democracy reached in Chile and the scarce past intervention of
the government in redirecting or changing rules within the free market and the private sector over
the last 30 years, a direct expropriation or a diversion seem to be improbable to happen. A creeping
type of expropriation could actually be implemented by the government though the use of fiscal
leverage. This type of expropriate might be caused simply because the return on the investment is
considered too high or due to deteriorated economic and financial conditions which would force the
government to increase the tax bracket in order to reduce current deficit or debt interest payment.
Sensitivity of the Project to Wars and Strikes
Autopista Central lies in the heart of Santiago. Although the project would be very sensitive
to a war or to a terrorist attack, the probability of this type of event to happen is very low due to the
strong Chilean economy as well as a strong military force that mitigates these risks. Potential strikes
or civil demonstrations could adversely affect the asset although the electronic toll system would
reduce the risk and the lack of revenue collection.
Natural Disasters
Finally, the project is very sensitive to natural disasters. Specifically, given Chile’s location in
a strongly seismic area, the probability of an earthquake is very high thus the risk is also high.
Nevertheless, the firm has insurance to protect against financial losses caused by natural disasters
and thus this risk is mitigated.
Probability of Default
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
13
In mid-2007, Autopista Central’s credit rating was raised by Standard & Poor’s (from BBB-
“stable” to BBB- “positive”) and Moody’s (from Baa3 to Baa2). The rating agencies initiated the
upgrades citing positive upsides for the project’s revenues, the successful implementation of the toll
road’s electronic tolling system, and a sound financial position.21 The project’s rating was good but
still lower than Chile’s sovereign credit rating which stood at A and A2 as rated by Standard &
Poor’s and Moody’s, respectively.22
US Equity Risk Premium (ERP)
Based on the Global CFO Outlook Survey published by Professors John Graham and
Campbell Harvey of Duke University, in 2007 the ERP over the 10-Year US Treasury Bond was
estimated to be 4.58%.23
The Project Beta
The beta of a project is primarily affected by three factors:
i. Business: in terms of business risk, it has a medium level because of the following
factors.
• Stage Risk: The toll road is in its post-completion stage, the toll road has been
completely operational since 2006.
• Revenue Risk: The implementation and use of an electronic payment system has
been done successfully. Thus, Revenue Risk is expected to be low.
• Traffic Risk:
o Santiago represents 32% of the overall Chilean population.
o The GDP of the zone encompasses approximately 40% of the total Chilean
GDP.
o Users of the North and South corridor represent 35% of all the city vehicles.
o At least 65% of the vehicles from the Metropolitan area pass through the
North and South corridor once per month.
o In market surveys 24, citizens of Santiago (potential users) demonstrated that
they increasingly will use Autopista Central.
o The usage of the road is highly correlated with the economy of Chile which
has been stable and growing.
International Commercial Partners
Besides the international shareholders mentioned above, Autopista Central has a number of
international suppliers which include the following:
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
14
• Kapsch Group: Headquartered in Vienna, the Kapsch Group is one of the market leaders
in the European traffic telematics and communications industries.
• SICE: SICE is a Spanish firm that provides services and integrating technologies in the
fields of Intelligent Transport Systems and Environmental Control Systems.
• Q-Free ASA: Q-Free ASA is a Norwegian supplier of solutions and products for Road User
Charging and Traffic Surveillance having applications mainly within the electronic toll road
collection space. The company’s products and services include congestion charging, truck-
tolling, law enforcement and parking/access control.
Involvement of Multilateral Agencies
No multilateral agencies have stakes in or provide operational advice for Autopista Central.
Resource Risk
The most important resources for toll roads during the pre-completion stage are basic
construction materials (cement and steel). These elements are highly important, but during the post-
completion stage the importance of this supply is lower compared to the previous stage.
The cement market in Chile is an oligopoly of three companies that have operations
centered on the Santiago25 metropolitan area.
In the case of steel, it is also an oligopoly of two firms. Nearly 70% of the steel that is
utilized in Chile is produced locally while 30% is imported from Brazil, Argentina, and Ukraine26.
Considering the stage of the project, the availability of the resources, the suppliers and the location
of the project, the resource risk is low.
Inflation
The 2007 inflation rates for the U.S. and Chile were 2.19% and 7.40%, respectively,27 and the
inflation rates of both countries were projected to remain relatively stable going forward. In the case
of revenues, the firm has low risk because the concession that Autopista Central has with the Chilean
government permits fee adjustments to cover inflation. Similarly, the consortium’s bonds that were
issued in Chile which were issued in the inflation-indexed government regulated Unidades de Fomento
(see Exhibit 11 for more information on Unidades de Fomento). The aforementioned adjustments of
both revenues and debt serve to match the firm’s inflows with its outflows.
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
15
CASE QUESTIONS
1. Use the Damodaran Modified World CAPM model mentioned in the case as well as the
Erb, Harvey, Viskanta Cost of Capital Calculator to estimate a range of possible values for
ACS’ stake in Autopista Central.
NOTE: The accompanying Microsoft Excel spreadsheet file <<
Autopista_supplementary_spreadsheets.xls >> is an integral part of this case and
necessary to complete the calculations solicited in Question 1.
2. Given your valuation results from Question 1, the macroeconomic conditions of the time,
each player’s strategic interests, and other factors mentioned in the case, how much should
Flores ask Abertis and Santander for ACS’ stake in Autopista Central?
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
16
EXHIBITS
Exhibit 1 Map of Chile28
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
17
Exhibit 2 Diagram of the North-South Axis and General Velásquez Axis which compromise the
Autopista Central highway project of Santiago.29 Note that the project will connect to Santiago’s other
main highways.
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
18
Exhibit 3 Scope of the Autopista Central project
Installed Infrastructure
• 60 km of motorway
• 12 overpasses and 31 underpasses
• 6 motorway interchanges
• 4 bridges
• 2 emergency service areas
• 1.2 km of tunnel
• 3.1 km of semi-covered and covered trenches
• 155 emergency roadside telephones
• 900 traffic logging counters
• Two high-speed weigh-in-motion sites
• One traffic control room, manned 24/7
• One fiber optic-based communications backbone installed along the length of the motorway
to carry voice and data
• 52 Electronic sign panels
• 100 cameras along the road
• 150 data collection stations
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
19
Sociedad Concesionaria Autopista Central, SA ("Autopista Central")
Shareholder No. of Shares Interest %
Inversora de Infraestructuras, SL 14,500,000 25.00%
Skanska Kommersiell Utveckling Norden, AB 14,198,400 24.48%
Inversiones Nocedal, SA 13,340,000 23.00%
Skanska Infrastructure Development (Chile), SA 13,641,600 23.52%
Empresa Constructora Belfi, SA 1,160,000 2.00%
Empresa Constructora Brotec, SA 1,160,000 2.00%
TOTAL 58,000,000 100.00%
Exhibit 4a Stock ownership of the Autopista Central consortium as of December 31, 200730
Exhibit 4b Graphical representation of the ultimate ownership of Autopista Central as of
December 31, 2007
ACS
Inversora de
Infraestructura
s
Sociedad Concesionaria Autopista Central
Inversiones
Nocedal
Skanska
Skanska Kraft
Skanska
Kommersiell
Utveckling
Norden
Skanska
Infrastructure
Development
(Chile)
Empresa
Constructora
Belfi
Empresa
Constructora
Brotec
2.0% 2.0%
100.0% 100.0% 100.0%
100.0% 100.0%
24.5% 23.5% 25.0% 23.0%
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
20
Exhibit 5 The Global Operations of ACS31 Algeria, Andorra, Angola, Argentina, Australia, Belgium, Brazil, Cameroon, Canada, Chile, China, Colombia, Costa Rica, Dominican Republic,
Ecuador, Egypt, El Salvador, Ethiopia, France, Germany, Greece, Guatemala, Honduras, India, Ireland, Italy, Jordan, Libya, Mexico, Morocco,
Nicaragua, Panama, Peru, Poland, Portugal, Saudi Arabia, South Africa, Spain, United Arab Emirates, United Kingdom, United States, and Venezuela.
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
21
Scaling Factor : 1000000 EUR
3 YR BALANCE SHEET 12/31/06 12/31/05 12/31/04
ASSETS
Cash And ST Investments 2,807.58 2,045.28 1,590.15
Receivables (Net) 6,487.66 5,541.52 5,176.53
Total Inventories 738.26 553.56 403.56
Other Current Assets 0.00 0.00 25.35
Current Assets - Total 10,078.01 8,176.75 7,195.59
Other Assets 1,250.20 1,174.57 1,294.30
Total Assets 24,823.99 17,376.41 12,575.81
LIABILITIES & SHAREHOLDERS' 12/31/06 12/31/05 12/31/04
Accounts Payable 6,181.34 6,568.66 5,507.64
ST Debt & Current Portion of LT Debt 1,433.03 1,249.61 1,099.55
Income Taxes Payable 908.21 715.02 #N/A
Other Current Liabilities 2,373.65 553.20 1,243.47
Current Liabilities - Total 11,205.95 9,302.56 7,850.66
Long Term Debt 10,120.90 5,017.40 1,928.68
Other Liabilities 114.48 135.46 183.18
Total Liabilities 21,492.35 14,496.78 10,235.20
Shareholders' Equity
Minority Interest 140.67 154.61 119.10
Preferred Stock 0.00 0.00 0.00
Common Equity 3,115.69 2,480.91 2,070.30
Retained Earnings 2,352.14 1,380.41 748.20
Total Liabilities & Shareholders' Equity 24,823.99 17,376.41 12,575.81
3 YR INCOME STATEMENT 12/31/06 12/31/05 12/31/04
Net Sales or Revenues 14,067.17 12,113.89 10,960.66
Cost of Goods Sold 11,922.15 10,101.48 9,186.58
Depreciation, Depletion & Amortization 280.91 230.14 315.44
Gross Income 1,864.11 1,782.27 1,458.64
Selling, General & Admin Expenses #N/A #N/A #N/A
Operating Expenses - Total 13,834.95 11,744.11 10,705.74
Operating Income 232.23 369.78 254.92
Non-Operating Interest Income 186.35 83.23 64.87
Earnings Before Interest And Taxes (EBIT) 2,057.38 1,003.16 773.54
Interest Expense On Debt 413.01 198.85 150.07
Pretax Income 1,644.38 804.31 623.47
IncomeTaxes 370.96 171.33 145.98
Minority Interest 23.32 24.32 17.10
Equity In Earnings #N/A #N/A #N/A
Net Income Before Extra Items/Preferred Div 1,250.09 608.66 460.39
Extr Items & Gain(Loss) Sale of Assets 0.00 0.00 0.00
Net Income Before Preferred Dividends 1,250.09 608.66 460.39
Preferred Dividend Requirements 0.00 0.00 0.00
Net Income Available to Common 1,250.09 608.66 460.39
Source: ThomsonFinancial
Currency: EUR
ACS: 3-Yr Historical Financials
Exhibit 6
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
22
0%
1%
2%
3%
4%
5%
6%
7%
8%
Jan-99
Mar
May Jul
Sep
Nov
Jan-00
Mar
May Jul
Sep
Nov
Jan-01
Mar
May Jul
Sep
Nov
Jan-02
Mar
May Jul
Sep
Nov
Jan-03
Mar
May Jul
Sep
Nov
Jan-04
Mar
May Jul
Sep
Nov
Jan-05
Mar
May Jul
Sep
Nov
Jan-06
Mar
May Jul
Sep
Nov
Jan-07
Mar
May Jul
Sep
Nov
USD LIBOR Rates1999-2007
1-Month
3-Month
6-Month
1-Year
Source: http://www.liborated.com/historic_libor_rates.asp
3 YR CASH FLOW STATEMENT 12/31/06 12/31/05 12/31/04
Net Income / Starting Line 1,250.09 608.66 #N/A
Depreciation, Depletion & Amortization #N/A #N/A 315.44
Deferred Income Taxes #N/A #N/A #N/A
Funds From Operations 941.08 808.13 799.52
Extraordinary Items 0.00 0.00 #N/A
Net Cash From Operations 1398.519 1354.317 #N/A
Disposal of Fixed Assets #N/A #N/A #N/A
Decrease In Investments #N/A #N/A #N/A
Capital Expenditures 1125.389 881.64 5.808
Net Cash From Investing 5407.053 4216.496 #N/A
Long Term Borrowings 5,248.47 3,123.26 #N/A
Net Proceeds From Sale/Issue of Com & Pref #N/A 58.26 #N/A
Inc(Dec) In Short Term Borrowings -607.92 -92.93 #N/A
Cash Dividends Paid - Total 211.72 137.62 49.40
Reduction In Long Term Debt #N/A #N/A #N/A
Net Cash From Financing 4167.34 3051.871 #N/A
Effect of Exchange Rate On Cash #N/A #N/A #N/A
Inc(Dec) In Cash & Short Term Investments 158.81 189.69 #N/A
Exhibit 6 (Continued)
Exhibit 7
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
23
Actividades de Construcción y Servicio ("ACS")
Public Stock Exchanges: Madrid Stock Exchange
Ticker Symbol: ACS
Shareholder Interest %
Corporación Financiera Alba, SA 20.0%
Corporación Financiera Alcor, SA 12.5%
Inversiones Vesan, SA 11.0%
Iberostar Hoteles y Apartamentos, SL 5.0%
Public Float (Non-controlling Shareholders) 51.5%
TOTAL 100.0%
Skanska AB ("Skanska")
Public Stock Exchanges: Stockholm Stock Exchange
Ticker Symbol: SKA B
Shareholder Voting Power % EquityInterest %
Industrivärden (Investment Company) 27.1% 8.0%
AMF Pension 3.4% 5.0%
Swedbank Robur fonder 2.3% 3.4%
SEB fonder 1.9% 2.8%
AFA Försakring 1.8% 2.7%
Alecta 1.8% 2.6%
SHB/SPP fonder 1.5% 2.2%
State of New Jersey Pension Fund 1.1% 1.7%
AMF Pension fonder 0.9% 1.4%
Andra AP-fonden 0.8% 1.2%
Lansförsäkringar fonder 0.8% 1.2%
Första AP - fonden 0.8% 1.2%
SHB Pensionsstitelse 3.0% 1.1%
Alpine fonder 0.7% 1.0%
Catella fonder 0.7% 1.0%
Public Float (Non-controlling Shareholders) 51.4% 63.5%
TOTAL 100.0% 100.0%
Exhibit 8 Stock ownership of ACS as of December 31, 200732
Exhibit 9 Stock ownership of Skanska as of December 31, 2007
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
24
Autopista Central - Details of Bond Issues
Issue
Placement
Date Currency
Country
Where Issued Principal Amount
Interest
Type
Interest
Rate Tenor
A-1 15-Dec-03 UF1
Chile 13,000,000 Fixed 6.223% 23 years2
A-2 15-Dec-03 UF1
Chile 500 Fixed 6.223% 23 years2
A-1 15-Dec-03 USD USA 250,000,000 Fixed 5.300% 23 years3
1 UF stands for "Unidad de Fomento" and is an inflation indexed currency created by the Chilean
government. The currency'svalue increases with inflation and vice versa. On December 15, 2003
the UF/USD exhange rate was roughly 27.15 and the Chilean Peso (CLP) to UF exchange rate
was 16,941.34.2 The UF denominated bonds were to pay interest from the period 15-June-2004 until 15-June-2010
upon which the bonds would then begin to pay both interest and principal payments according to a
prespecified amortization table.3 The USD denominated bonds were to pay interest from the period 15-June-2004 until 15-June-2007
upon which the bonds would then begin to pay both interest and a pre-specified commission to
bondholders. Starting on 15-June-2010, the bonds would pay interest plus principal payments
according to a prespecified amortization table.
Autopista Central - Estimated Sources and Uses of Funds*
USD Millions
Sources Uses
Public Bonds $552 Construction Costs $447
Equity Capital 87 Cancellation of Bridge Loans 120
Subordinated Debt 121 Operating Costs 234
Financial Revenue 3 Cash 42
Revenue from Tolls 159 Value Added Tax and Working Capital 24
Value Added Tax Credit 24 Other 79
Total $946 Total $946
*Company projections from 2003
Exhibit 10
Exhibit 11
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
25
0
100
200
300
400
500
600
700
800
16,000
16,500
17,000
17,500
18,000
18,500
19,000
19,500
20,000
Jan-02 May-03 Sep-04 Feb-06 Jun-07
CL
P /
US
D
CL
P /
UF
Chilean Peso (CLP) and Unidad de Fomento (UF) Exchange Rates 2002 - 2007
CLP/UF CLP/USDSource: Central Bank of Chile
Date CLP/USD CLP/UF Date CLP/USD CLP/UF Date CLP/USD CLP/UF
Jan-02 651.67 16,262.66 Jan-04 585.57 16,918.36 Jan-06 520.51 17,973.65
Feb-02 678.63 16,226.45 Feb-04 578.64 16,867.61 Feb-06 528.36 17,924.37
Mar-02 668.29 16,202.29 Mar-04 585.53 16,830.11 Mar-06 517.48 17,923.27
Apr-02 657.11 16,197.66 Apr-04 609.92 16,820.82 Apr-06 524.34 17,915.09
May-02 646.97 16,257.01 May-04 623.65 16,870.13 May-06 514.70 17,989.20
Jun-02 658.62 16,326.94 Jun-04 643.70 16,870.13 Jun-06 530.76 18,098.07
Jul-02 698.40 16,355.74 Jul-04 630.75 17,017.78 Jul-06 537.72 18,152.61
Aug-02 704.66 16,347.96 Aug-04 641.59 17,090.98 Aug-06 542.69 18,243.07
Sep-02 714.95 16,392.22 Sep-04 628.57 17,133.97 Sep-06 538.27 18,243.07
Oct-02 745.30 16,457.22 Oct-04 606.63 17,193.07 Oct-06 532.46 18,402.99
Nov-02 726.83 16,572.44 Nov-04 611.50 17,224.15 Nov-06 525.79 18,417.70
Dec-02 701.17 16,716.02 Dec-04 583.85 17,266.48 Dec-06 526.21 18,377.16
Jan-03 718.39 16,743.58 Jan-05 571.46 17,318.73 Jan-07 532.05 18,335.20
Feb-03 733.64 16,689.55 Feb-05 582.57 17,280.66 Feb-07 544.61 18,339.32
Mar-03 749.42 16,684.20 Mar-05 582.70 17,225.78 Mar-07 539.42 18,383.35
Apr-03 726.49 16,787.92 Apr-05 585.68 17,198.23 Apr-07 538.87 18,371.78
May-03 702.38 16,970.27 May-05 580.18 17,269.38 May-07 526.09 18,416.12
Jun-03 709.59 17,011.71 Jun-05 580.18 17,412.32 Jun-07 525.11 18,517.75
Jul-03 695.99 16,957.41 Jul-05 581.93 17,491.00 Jul-07 527.30 18,627.89
Aug-03 708.47 16,939.29 Aug-05 559.79 17,556.90 Aug-07 524.00 18,782.07
Sep-03 695.59 16,926.72 Sep-05 539.57 17,653.18 Sep-07 523.00 18,978.97
Oct-03 657.24 16,947.16 Oct-05 528.03 17,719.33 Oct-07 511.00 19,185.94
Nov-03 625.79 16,981.34 Nov-05 544.52 17,864.89 Nov-07 493.50 19,398.81
Dec-03 618.38 16,965.17 Dec-05 514.85 17,976.45
Exhibit 12
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
26
Long
Term�CompositeTreasury
(>10 yrs) 20-yr�CMT
2005 4.57% 4.64%
2006 4.97% 5.00%
2007 4.87% 4.91%
Average
Intervals U.S. Chile
Mar-05 92.4 70.0
Sep-05 92.5 71.6
Mar-06 93.5 73.6
Sep-06 94.5 73.2
Mar-07 94.0 76.4
Sep-07 94.1 77.6
Company Beta WeightWeighted
Beta
Stock
Market
Atlantia SpA 0.768 21.9% 0.168 FTSEMIB
Abertis Infraestructuras SA 0.878 20.8% 0.182 IBEX
Transurban Group 0.710 13.4% 0.095 AS51
Groupe Eurotunnel SA 1.065 12.0% 0.128 CAC
Brisa Auto-Estradas de Portugal SA 0.844 6.5% 0.055 PSI20
Macquarie Group Ltd 1.232 6.0% 0.074 AS51
ConnectEast Group 0.942 4.2% 0.039 AS51
Zhejiang Expressway Co Ltd 0.861 3.9% 0.034 HSI
Macquarie Korea Infrastructure Fund 0.557 3.7% 0.021 KOSPI
Jiangsu Expressway Co Ltd 0.829 3.4% 0.028 HSI
Average 0.869 95.8% 0.824
Median 0.853
Exhibit 13 Historical Long Term US Treasury Rates33 (derived from daily returns)
Exhibit 14 Institutional Investor Credit Ratings34
Exhibit 15 Betas of Comparable Construction and Infrastructure Development Companies35
Balance Sheet for Autopista CentralChilean Pesos in Thousands, except per share
Historical Year Ending Dic 31
2005 2006 2007
Cash 21,574,842.0 466,396.0 8,493,630.0
Accounts receivables, net 12,691,032.0 17,703,290.0 23,354,253.0
Other current assets 13,759,840.0 23,075,791.0 27,765,363.0
Total Current Assets: 48,025,714.0 41,245,477.0 59,613,246.0
PP&E, net 474,795,260.0 518,709,502.0 556,005,309.0
Other long-term assets 39,783,603.0 53,418,701.0 69,604,954.0
Total Assets: $562,604,577.0 $613,373,680.0 $685,223,509.0
Accounts payable 16,556,239.0 7,312,103.0 4,351,186.0
Other current liabilities 7,352,482.0 5,182,344.0 8,770,711.0
Total Current Liabilities: 23,908,721.0 12,494,447.0 13,121,897.0
Revolver 0.0 0.0 0.0
Other long term liabilities 71,151,010.0 130,984,518.0 139,163,202.0
Long-term debt 369,737,551.0 373,110,826.0 416,284,512.0
Total Liabilities: 464,797,282.0 516,589,791.0 568,569,611.0
Total equity 97,807,295.0 96,783,889.0 116,653,898.0
Total Liabilities and Equity: $562,604,577.0 $613,373,680.0 $685,223,509.0
Exhibit 16
NOTE: 2007 Year-End Figures are Estimates
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
28
Income Statement for Autopista CentralChilean Pesos in Thousands, except per share
Historical Year Ending Dic 31
2005 2006 2007 2008 2009 2010 2011 2012
Sales $44,516,120.0 $49,168,387.0 $66,914,030.0 $78,757,813.3 $92,697,946.3 $109,105,482.8 $123,725,617.4 $140,304,850.2
Cost of sales (excluding depreciation) $14,329,000.0 $8,102,100.0 $8,682,601.0 12,995,566.7 18,539,589.3 21,821,096.6 24,745,123.5 28,060,970.0
Gross Profit $30,187,120.0 $41,066,287.0 $58,231,429.0 $65,762,246.6 74,158,357.0 87,284,386.2 98,980,494.0 112,243,880.1
SG&A expenses (excluding amortization) $19,650,379.0 $12,743,091.0 $12,137,881.0 13,388,828.3 15,758,650.9 18,547,932.1 21,033,355.0 23,851,824.5
Other operating (income) / expense ($27,102,441.0) $25,342,512.0 $16,710,461.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0
EBITDA $37,639,182.0 $2,980,684.0 $29,383,087.0 $26,266,580.3 $32,292,868.1 $42,629,616.1 $51,840,301.0 $62,285,217.6
Depreciation $8,356,710.0 $10,132,759.0 $12,580,906.0 $14,176,406.4 16,268,971.1 18,658,171.0 20,602,243.3 22,732,300.8
Amortization $0.0 $0.0 $0.0
EBIT $29,282,463.0 ($7,152,075.0) $16,802,181.0 $12,090,173.9 $16,023,897.1 $23,971,445.1 $31,238,057.7 $39,552,916.8
Income Statement for Autopista CentralChilean Pesos in Thousands, except per share
2013 2014 2015 2016 2017 2018 2019 2020
Sales $159,105,700.1 $180,425,863.9 $204,602,929.7 $214,833,076.2 $225,574,730.0 $236,853,466.5 $248,696,139.8 $261,130,946.8
Cost of sales (excluding depreciation) 31,821,140.0 36,085,172.8 40,920,585.9 42,966,615.2 45,114,946.0 47,370,693.3 49,739,228.0 52,226,189.4
Gross Profit 127,284,560.1 144,340,691.1 163,682,343.7 171,866,460.9 180,459,784.0 189,482,773.2 198,956,911.8 208,904,757.4
SG&A expenses (excluding amortization) 27,047,969.0 30,672,396.9 34,782,498.0 36,521,622.9 38,347,704.1 40,265,089.3 42,278,343.8 44,392,261.0
Other operating (income) / expense 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0
EBITDA $74,129,753.1 $87,561,456.3 $102,793,007.7 $109,238,000.0 $116,005,241.9 $123,110,845.9 $130,571,730.1 $138,405,658.5
Depreciation 25,063,279.9 27,610,780.2 30,390,974.4 30,944,890.1 31,478,220.0 31,987,520.7 32,469,055.9 32,918,775.8
Amortization
EBIT $49,066,473.1 $59,950,676.0 $72,402,033.3 $78,293,109.9 $84,527,021.8 $91,123,325.2 $98,102,674.2 $105,486,882.6
Exhibit 16 (Continued)
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
29
Income Statement for Autopista CentralChilean Pesos in Thousands, except per share
2021 2022 2023 2024 2025 2026 2027 2028
Sales $274,187,494.1 $287,896,868.8 $302,291,712.3 $317,406,297.9 $333,276,612.8 $349,940,443.4 $367,437,465.6 $385,809,338.9
Cost of sales (excluding depreciation) 54,837,498.8 57,579,373.8 60,458,342.5 63,481,259.6 66,655,322.6 69,988,088.7 73,487,493.1 77,161,867.8
Gross Profit 219,349,995.3 230,317,495.1 241,833,369.8 253,925,038.3 266,621,290.2 279,952,354.7 293,949,972.5 308,647,471.1
SG&A expenses (excluding amortization) 46,611,874.0 48,942,467.7 51,389,591.1 53,959,070.6 56,657,024.2 59,489,875.4 62,464,369.2 65,587,587.6
Other operating (income) / expense 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0
EBITDA $146,631,283.3 $155,268,189.4 $164,336,940.7 $173,859,129.7 $183,857,428.1 $194,355,641.4 $205,378,765.3 $216,953,045.5
Depreciation 33,332,295.1 33,704,869.4 34,031,370.3 34,306,259.1 34,523,558.5 34,676,822.1 34,759,103.1 34,762,920.3
Amortization
EBIT $113,298,988.2 $121,563,320.0 $130,305,570.4 $139,552,870.5 $149,333,869.6 $159,678,819.3 $170,619,662.2 $182,190,125.2
Income Statement for Autopista CentralChilean Pesos in Thousands, except per share
2029 2030
Sales $405,099,805.8 $425,354,796.1
Cost of sales (excluding depreciation) 81,019,961.2 85,070,959.2
Gross Profit 324,079,844.7 340,283,836.9
SG&A expenses (excluding amortization) 68,866,967.0 72,310,315.3
Other operating (income) / expense 26,106,838.0 26,106,838.0
EBITDA $229,106,039.7 $241,866,683.6
Depreciation 34,680,221.3 34,502,345.2
Amortization
EBIT $194,425,818.3 $207,364,338.3
Exhibit 16 (Continued)
Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010
30
Projected CAPEX, Net Changes in Working Capital, and Net Changes in Other Assets and Liabilities for Autopista Central
Chilean Pesos in Thousands, except per share
Year CAPEX
Change in
Working
Capital
Change in Other
Assets and
Liabilities
2008 ($3,152,186.1) ($2,495,040.9) $2,782,329.9
2009 ($3,710,123.1) ($2,331,551.0) $2,893,623.1
2010 ($4,366,814.9) ($7,579,903.0) $3,009,368.0
2011 ($4,951,920.0) ($6,753,610.2) $3,129,742.8
2012 ($2,807,738.6) ($7,659,148.4) $3,254,932.5
2013 ($3,183,975.6) ($8,685,474.3) $3,385,129.8
2014 ($3,610,628.4) ($9,849,327.9) $3,520,535.0
2015 ($4,094,452.6) ($11,169,137.8) $3,661,356.4
2016 ($4,299,101.5) ($4,724,344.3) $3,807,810.6
2017 ($4,513,979.2) ($4,960,476.4) $3,960,123.0
2018 ($4,739,596.9) ($5,208,411.0) $4,118,528.0
2019 ($4,976,491.4) ($5,468,737.8) $4,283,269.1
2020 ($5,225,226.4) ($5,742,076.2) $4,454,599.8
2021 ($5,486,393.7) ($6,029,076.7) $4,632,783.8
2022 ($5,760,614.6) ($6,330,422.0) $4,818,095.2
2023 ($6,048,541.6) ($6,646,829.1) $5,010,819.0
2024 ($6,350,859.8) ($6,979,050.9) $5,211,251.8
2025 ($6,668,288.5) ($7,327,877.9) $5,419,701.8
2026 ($7,001,582.9) ($7,694,139.8) $5,636,489.9
2027 ($7,351,536.0) ($8,078,708.3) $5,861,949.5
2028 ($7,718,980.5) ($8,482,498.3) $6,096,427.5
2029 ($8,104,790.6) ($8,906,470.6) $6,340,284.6
2030 ($8,509,884.2) ($9,351,633.8) $6,593,896.0
Exhibit 16 (Continued)
Exhibit 17 Assumptions Used in the Autopista Central Financial Projections of Manuel Flores
• Revenues: Revenues increase, but in a decreasing manor, during the first years (until 2010) because of the
new highway opening. From 2015 onward revenues have a stable growth of 5%, which is the Y/Y increase
in the toll rate.
• Gross margin: 80% which is the management target for the concession.
• SG&A expenses: 17% of sales based on management input and historical data.
• Other operating income / expense: We used historical and target data and management input.
• Depreciation Schedule: The concession project is fully depreciated during the life of the project. The
Chilean law allows full depreciation of the concession before the asset’s control is returned to the local
government.
• Dividends: No dividends paid to the equity holders until completion of the concession. Equity partners
have a mezzanine credit facility that is use to extract cash flows at a better tax rate.
• Shares: No shares repurchased or issued during the concession period.
• Debt: For simplicity we use a linear repayment schedule. As the agreement was structured, the concession
pays interest to debt holders as well as accounts payable holders.
ENDNOTES
1 “Chile: 2008 Annual Country Report,” The Economist Intelligence Unit Limited, London, pps 4-5. 2 Ibid. p. 137. 3 1985 Santiago Earthquake. http://en.wikipedia.org/wiki/1985_Santiago_earthquake 4 Ibid. p. 138. 5 2007 Autopista Central Annual Report. p. 137. 6 2002 Grupo ACS Annual Report, p. 78. 7 2006 Grupo ACS Annual Report, p. i-ii. 8 Skanska AB company website; http://www.skanska.com 9 2006 Skanska AB Annual Report, p. i. 10 2007 Skanska AB Annual Report, p. 1. 11 Abertis. http://en.wikipedia.org/wiki/Abertis 12 Abertis Investor Presentation (http://www.abertis.com), December 19, 2008, p. 4. 13 Ibid. p. 137. 14 http://financialranks.com/?p=69 15 Banco Santander Chile Corporate Relations Website http://phx.corporate-ir.net/phoenix.zhtml?c=71614&p=irol-IRHome 16 Santander Asset Management Website, http://www.santanderam.co.uk 17 Aswath Damodaran, “Measuring Company Exposure to Country Risk: Theory and Practice,” http://pages.stern.nyu.edu/~adamodar/, The Stern School of Business, New York University. 18 Aswath Damodaran, “Country Default Spreads and Risk Premiums,” http://pages.stern.nyu.edu/~adamodar/, The Stern School of Business, New York University. 19 C.B. Erb, C.R. Harvey, and T.E. Viskanta, “Expected Returns and Volatility in 135 Countries,” the Journal of Portfolio Management, 1995. 20 Institutional Investor Magazine. http://www.iimagazine.com/ 21 Ibid. p. 239. 22 http://www.moodys.com/cust/default.asp and http://www.standardandpoors.com/home/en/us . 23 John R. Graham and Campbell R. Harvey, “The Equity Risk Premium in January 2007: Evidence from the Global CFO Outlook Survey.” Duke University, Durham, NC USA. 24 2001 research presentation prepared for Autopista Central by the traffic consulting firm Steer Davies Gleave. 25 Proexport Colombia , “Inteligencia de Mercados,” 1999. 26 The Chilean Copper Commission, “Mercado Internacional del Hierro y el Acero de 005/2008,” Santiago, Chile. 2008. 27 Case writers’ estimates. 28 Ibid. p. ii. 29 Ibid. p. 160. 30 Ibid. p. 130. 31 ACS’ group website; http://www.grupoacs.com/index.php/en 32 Ibid. p. 131. 33 The US Treasury, http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/ltcompositeindex_historical.shtml 34 Institutional Investor. Historic database of ratings maintained by Prof. Campbell R. Harvey. 35 Data for calculations obtained from Thomson OneBanker and Yahoo! Finance.