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Case Studies by Pierre Hillion

16 case studies

published: 24 May 2012

  • Topic: Economics & Finance
  • Industry: Infrastructure
  • Region: Other Regions

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Abstract:
Aquasure - a consortium formed by Macquarie, Degremont and Thiess - won the concession to finance, build, maintain and operate the A$5.72 billion Victorian Desalination plant under a public-private partnership initiative known as Partnerships Victoria. Financing took place during the period of the global financial crisis and there was a subsequent political backlash.

Pedagogical Objectives:
The structure of project finance; how risk is allocated and mitigated within the structure; the pros and cons of public-private partnerships; the discount rate as a measure of the transfer of risk; political risk in PPP.

Keywords:
Public-Private Partnership, Partnerships Victoria, Project Finance, Global Financial Crisis, Public Sector Comparator, Discount Rate, Transfer of Risk, Political Backlash, Corporate Governance, Auditing, Risk Control and Performance

Prizes won:
- Winner of 2011 EFMD Case Writing Competition, Public Sector Innovations Category

published: 29 Jun 2015

  • Topic: Economics & Finance
  • Industry: Transport
  • Region: Asia

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Abstract:
In 2013, the long-delayed IPO of the Bangkok Mass Transit System Public Co. Ltd. (BTSC) took place, but in an unusually complex form. Instead of selling the shares of the company that owned the elevated railway concession, what was offered were investment units in Thailand’s first publicly listed infrastructure mutual fund: the BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF). Proceeds from the IPO were used to acquire from BTSC the rights to the net farebox revenue generated from the railway. The investment exposed investors not only to the operating risk of the railway but to other types such as political risk.

Pedagogical Objectives:
To discuss the complexity of BTSC’s fund raising via BTSGIF and, more generally, the valuation of projects with political risks. Instead of a simple IPO of BTSC, the case looks at the more complicated contractual relationships between BTSG, BTSC and BTSGIF, why such a method of fund raising was chosen, and the pros and cons for the various parties. It also raises issues about investing in infrastructure trusts, particularly in politically volatile emerging markets.

Keywords:
Ipo, Concession, Infrastructure, Political Risk, Railway, Public-Private Partnership (ppp), Infrastructure Fund

published: 28 Apr 2014

  • Topic: Economics & Finance
  • Industry: Infrastructure
  • Region: Other Regions

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Abstract:
BrisConnections won the bid to construct the Airport Link toll road under a BOOT (Build, Own, Operate and Transfer) PPP model just as the global financial crisis took hold in 2008. Soon the project would take its place among a string of Australian toll road project failures.

Pedagogical Objectives:
To examine the public infrastructure fund model, the Australian public private partnership (PPP) toll road model, and the roles of various public and private stakeholders in the Airport Link project. To value the project and examine the assumptions underlying the model. To trace the impact of the project's failure and re-examine the project structure.

Keywords:
Project Finance, Toll Road, Financial Crisis, Infrastructure Fund, Default, Underwriters, Public Private Partnership (ppp), Conflict of Interest

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published: 28 Apr 2014

  • Topic: Economics & Finance
  • Industry: Infrastructure
  • Region: Other Regions

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Abstract:
BrisConnections won the bid to construct the Airport Link toll road under a BOOT (Build, Own, Operate and Transfer) PPP model just as the global financial crisis took hold in 2008. Soon the project would take its place among a string of Australian toll road project failures.

Pedagogical Objectives:
To examine the public infrastructure fund model, the Australian public private partnership (PPP) toll road model, and the roles of various public and private stakeholders in the Airport Link project. To value the project and examine the assumptions underlying the model. To trace the impact of the project's failure and re-examine the project structure.

Keywords:
Project Finance, Toll Road, Financial Crisis, Infrastructure Fund, Default, Underwriters, Public Private Partnership (ppp), Conflict of Interest

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published: 01 Jul 2005

  • Industry: Technology, Semiconductor
  • Region: Asia

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Abstract:
This case describes the rights offering by CSM in 2002 which was largely judged to be a failure despite the company receiving the full planned proceeds. The case takes the reader through the rights offering process, and details the "hiccups" arising from adverse market conditions as well as process mismanagement. It also allows the reader to use actual data provided by several top broker research analysts to conduct a valuation exercise. Other questions addressed include: Does price matter in a rights offering? Are investors rational? How does one gauge the value of a project?

Pedagogical Objectives:
Objectives include understanding the rights offering process and the rationale behind such a decision, including how to price a rights offering; recognising negative NPV projects and the fact that the markets are usually rational when valuing these projects; learning the role of investment banks and underwriters in fund raising exercises; and gaining an understanding of how

Keywords:
Rights Offering, Investor Relations, Corporate Governance, Company Valuation, Securities Underwriting, Project Funding

published: 09 Jan 2005

  • Topic: Economics & Finance
  • Industry: Oil/ Commodities
  • Region: Asia

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Abstract:
A description of the events leading to the collapse of China Aviation Oil under US$550m of derivative trading losses and subsequent attempts to identify the causes and save the company from liquidation via a debt restructuring scheme of arrangement.

Pedagogical Objectives:
Identify corporate governance and risk management measures necessary for smooth running of a company, as well as the dangers of derivative trades in the hands of those either ignorant or reckless of the risks.

Keywords:
Corporate Governance, Risk Management, Derivative Trading, Debt Restructuring, Corporate Governance, Investors, Stakeholders and Accountability

published: 26 Nov 2012

  • Topic: Economics & Finance
  • Industry: Automotive
  • Region: Europe

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Abstract:
In September 2010, Dürr AG issued a corporate bond without the use of underwriters or rating agencies via a new bond issuance platform developed by Boerse Stuttgart. This reflected a growing trend among European corporations to tap capital markets instead of bank debt to secure debt financing.

Pedagogical Objectives:
To explore the sources of corporate debt financing following the global financial crisis and compare the costs of funding via corporate bonds and bank debt markets. The case materials allow students to develop a deeper understanding of sharing credit risk among different debt instruments and how this is reflected in credit spreads.

Keywords:
Corporate Debt Disintermediation, Corporate Bond Issuance, Bank Debt, Basel III Regulation, Global Financial Crisis, Corporate Funding Alternative, Credit Risk, Credit Spreads, European Competitiveness, Europe

published: 30 Jul 2018

  • Topic: Economics & Finance
  • Industry: Natural Gas Transmission
  • Region: Europe

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Abstract:
In April 2010, infrastructure fund Njord Gas Infrastructure AS bought ExxonMobil’s 9.428% stake in Norwegian gas pipelines Gassled. Njord was interested in Gassled’s steady returns and Norway’s regulatory/political consistency and transparency. Once built, pipelines were seen as a relatively safe investment as tariffs to transport natural gas were usually fixed for many years (whether prices rose or fell) and bookings were made years in advance. Others followed Njord’s lead in 2011 and 2012 to buy into Gassled – four infrastructure funds owned 44% of Gassled after the acquisitions. It came as a shock when a year after the transactions went through, the Norwegian government decided that returns were too high and decided to cut the tariffs charged by Gassled to transport gas by 90%.

Pedagogical Objectives:
The case highlights the risks in long-lived assets like infrastructure assets, and the rising political risks even in supposedly stable environments (Western Europe) as governments face rising budget deficits, high energy prices and rising demand, which can lead to regulatory intervention. Political risk has always been associated with emerging markets where the rule of law is less stringently enforced. The case serves to point out that such assumptions will need to be scrutinised in the future and risk-weighted in asset valuations. It underscores the importance of due diligence in today’s increasingly fraught environment. Focusing on the valuation of infrastructure assets, it illustrates how changes in assumptions (e.g. tariffs) affect valuation.

Keywords:
Pipelines, Natural Gas, Infrastructure, Political Risk, Norway, Tariff, Infrastructure Fund

published: 25 Jan 2011

  • Topic: Economics & Finance
  • Industry: Water Industry
  • Region: Asia

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Abstract:
The growth of Hyflux Limited (Hyflux) required it to become more financially sophisticated. As part of its “asset-light” funding strategy – optimising the use of capital by realising asset values early to keep a lean balance sheet - Hyflux spun off 13 water plants to a business trust, Hyflux Water Trust (HWT).

Pedagogical Objectives:
To study the different options of funding for Hyflux, the pros and cons of listing a business trust, including the corporate governance issues involved in such a structure, and which is a better investment opportunity - Hyflux or HWT.

Keywords:
Project Finance, Business Trust, Renewable Resources, Infrastructure Funds, Spin-Off, Water Industry, Asset Light Strategy, Corporate Governance, Corporate Governance, Corporate Governance for Family Firms

Prizes won:
- Winner of 2010 EFMD Case Writing Competition Award

published: 27 May 2016

  • Topic: Economics & Finance
  • Industry: Infrastructure
  • Region: North America

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Abstract:
In September 2014, the Indiana Toll Road (ITR) in the US Mid-west, privatized as a 75-year concession at an impressive price of US$3.8 billion only nine years earlier, filed for Chapter 11 bankruptcy , having chalked up US$6.3 billion of debt. In the subsequent sell-off the ITR managed to attract an even bigger bid than before - of US$5.72 billion.

Pedagogical Objectives:
The valuation of infrastructure assets; determining the right discount rate; pros and cons of public-private partnerships; the "winner's curse".

Keywords:
Toll Road, Infrastructure, Public-Private Partnership (ppp), Project Finance, Privatization, Step-Up Swap, Inner's Curse, Corporate Governance, Auditing, Risk Control and Performance

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