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Case Studies by Pierre Hillion

16 case studies

by Publication Date
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: 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

Related:

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: 29 Jun 2015

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

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Abstract:
The case discusses the public-private partnership to build the New Royal Adelaide Hospital (NRAH) (replacing the outdated Royal Adelaide Hospital) at a cost of A$1.7 billion in 2009. The 35-year concession was eventually awarded to a consortium, the South Australian Health Partnership (SAHP), and the government agreed to make an annual service payment to the consortium of A$397 million a year once the hospital was completed in 2016. Rising state debt in the wake of the global financial crisis led to protests by opposition politicians when the cost of the NRAH was said to have ballooned.

Pedagogical Objectives:
Valuation of social infrastructure project finance.

Keywords:
Public-Private Partnership, Hospital, Ppp, Healthcare, Australia, Social Infrastructure

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

Related:

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

Related:

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: 26 Nov 2012

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

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Abstract:
In 2009, a Macquarie consortium won the tender to build six Irish schools under a public-private partnership programme. The work was financed mainly with debt, with only €50,000 of straight equity injected into the project. Payments from the Irish government were the sole source of revenue. However, the advent of the sovereign debt crisis in Europe put the government's ability to pay in doubt.

Pedagogical Objectives:
The case study illustrates sovereign risk in PPPs, contrary to the assumptions usually made that the government will not default. Valuation of the project can also be discussed, particularly the use of subordinated debt as quasi-equity.

Keywords:
School Building, Project Finance, Irish Schools, Sovereign Risk, Public Private Partnership, Macquarie, Debt Crisis, European Competitiveness Initiative, European Competitiveness, Europe, Government and Policy

Prizes won:
- Winner of 2012 EFMD Case Writing Competition

published: 25 May 2012

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

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Abstract:
A consortium made up of Macquarie Infrastructure Group (MIG) and Cintra Concessiones de Infraestructuras de Transporte wins the concession for the Indiana Toll Road at a bid price of US$3.8 billion in January 2006. Market observers think the amount is too high, but MIG is confident the asset is worth the price.

Pedagogical Objectives:
Valuation of infrastructure asset, determining the right discount rate, pros and cons of public-private partnerships, winner's curse.

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

Related:

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

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