Transcript Autopista Central - Duke University`s Fuqua School of Business

Autopista Central
David Keller
Belisario Galarcep
Massimo Paone
Javier Vilardell
Agenda
• Chile
• Autopista Central
• The Deal
• Valuation Process
– The Damodaran Modified World CAPM Model
– EHV Cost of Capital Model
• What Happened?
Chile: a Brief History
•
Declared independence from the Spanish on September 18, 1810
•
After the War of 1879 vs Bolivia and Peru, Chile entered into a period of economic
expansion led by mining and manufacturing industries
•
1900’s flat economic growth and high inflation
•
Following an acute recession Chile elected the socialist Salvador Allende of the
Popular Unity Party (UP) in 1970 => Nationalization
•
On September 11, 1973, a military coup led by General Augusto Pinochet => crack
down on political activities
•
All post-Pinochet presidents affiliated with a center-left party known as the
Concertacion
Chile: Economy
GDP
•
Chile averaged 4.4% GDP growth (2002 and 2006)
•
Increased global demand and commodities prices boosted growth
•
Most dynamic economic sectors (2006): c communications, financial services,
agriculture, and forestry
Monetary Policy
•
Banco Central de Chile (BCC) : International degree of credibility
•
Inflation target of 3% (with 1% margin of error)
•
6.5% nominal rate improved monetary policy which is now better
Chile: Transportation Infrastructure
• Increasingly good infrastructure and a large highway coverage
• Since 1990, privatization of the construction and maintenance of
commercially viable roads through BOT concessions:
– Modern motorway network between La Serena and Puerto Montt (over 90% of
Chileans covered by this network)
– Also used to build urban toll roads in Santiago, Valparaíso and Concepción
• Chile's Ministry of Public Works aims to increase the network of paved
roads to 25,000 Km by the end of 2010
Chile: Santiago
• Largest city in the country with population of 7 million
• The area contains approximately 40% of Chile’s total population
• Accounts for nearly 43% of domestic GDP
• Is home to a number of foreign and Chilean multinational companies who
often use the city as a base for other South American operations
• Around 800K vehicles use the roads on any given workday in Santiago
(43% of all of the total number of vehicles registered in the country)
Autopista Central: Fast Facts
•
•
•
•
•
•
Concession contract: Granted on
01/04/2001
Concession period: 30 years
Construction started: 07/26/2001
Construction costs: US$ 680M
Funding:
– Bonds : US$ 603 m
– in NY: 250 m(6.33%, 23 yrs)
– in Chile: 353 m (5.69%, 23yrs)
Shareholders equity: US$ 208M
48%
48%
2%
2%
Main Shareholders
•
Strong presence in 15 countries in Latin
•
America
•
Revenues 2006: $18.3 billion
•
Net income 2006: $1.6 billion
•
Market cap (12/31/2006): $19.6 billion
•
Operates in South America, Africa, the
U.S., and Asia
•
Revenues 2006: $17.0 billion
•
Net Income 2006: $0.7 billion
•
Market cap (12/31/2006): $18 billion
•
Listed on the Stockholm Stock
Listed on the Madrid Stock Exchange
Exchange (OMX)
Autopista Central
Autopista Central: Business Model
• Toll collection: Electronic free Flow Tolling (100%)
• Toll fees:
•
– Vary according to vehicles’ classes, traffic conditions and heavy commercial
vehicles routes
– Adjusted in accordance with the annual change in CPI
– Autopista Central is allowed to increase toll fees at 3.5% real annually
Main outsourced services
– Payment collection agents
– Call centre
– Printing & mailing of invoices
– Day Pass vending channels
– Debt collection agents
– Tags warehouse & logistics
– Photos verification
Why the Business Model Works?
• Motorists have the obligation to report any changes of personal details to
Government Vehicle Registration
• Failure to pay toll and / or traffic fines results in:
– Owners listed in Debtors Database
– Vehicle listed in Traffic Offenders Database
• Law (2002) makes it mandatory to have valid Tag or alternative means,
when entering toll roads. Otherwise trespassers are exposed to prosecution
for Law Enforcement
• Toll equipment are Certified Means for collecting Enforcement data
•
Two ways to carry out Law Enforcement:
– Traffic Regulation Enforcement by Local Police. US$ 50 fine paid to Police
– Toll Payment Enforcement by Court: up to US$ 85 compensation paid to
concessionaire
Historical Performance: P&L
•
Expected strong operating
growth
•
70 % of 900,000 regular
urban toll roads users are
using Autopista Central
•
39% of urban toll roads
revenues are collected by
Autopista Central
Capital Structure – Balance Sheet
High leverage all the
years, on 2007:
• BV Total liabilities /
Equity = 4.8
• BV Debt / Equity = 3.8
(aprox. 20% Equity /
80% Debt)
Deal Parties: Buyers
•
•
•
•
•
•
Specializes in the management and
operation of toll roads and airports.
Listed on the Madrid Stock Exchange
Revenues: $4.2 billion
Net income of $0.7 billion
Operates > 6,500 km of toll roads in Europe
Chile:
– Operates two large toll roads: highways
– Operates the Santiago airport and
parking lots and logistics parks
 Autopista Central is highly complementary
to its infrastructure portfolio in LATAM.
•
The world’s 12th largest bank by market
cap (2007)
•
In Chile, Santander is the largest bank in
terms of total assets, loans, and
shareholder’s equity
•
Revenues of $69.4 billion
•
Net income of $7.9 billion
•
Santander Private Equity (SPE) is the
private equity unit of Santander’s Asset
Management group. In 2004 SPE raised a
$228 million infrastructure fund called
Santander Infraestructuras I
 Given its knowledge of the Chilean
market, Autopista Central was a perfect
fit to Santander portfolio
Valuation
ACS' Equity Value's Sensitivity to Changes in Assumed Project Beta
ACS Equity Value (USD Mln)
$800,000
$684,702
$700,000
$600,000
$555,763
$665,693
$539,627
$647,111
$523,845
$500,000
$400,000
$300,000
$200,000
$100,000
$0
0.90
1.00
1.10
Project Beta
EHV
CAPM with SS Adjustment (Lambda = 1.00)
How Did We
Value the
Project?
Financial Projections
Financial Projections
Financial Projections
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
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
CAPEX
($3,152,186.1)
($3,710,123.1)
($4,366,814.9)
($4,951,920.0)
($2,807,738.6)
($3,183,975.6)
($3,610,628.4)
($4,094,452.6)
($4,299,101.5)
($4,513,979.2)
($4,739,596.9)
($4,976,491.4)
($5,225,226.4)
($5,486,393.7)
($5,760,614.6)
($6,048,541.6)
($6,350,859.8)
($6,668,288.5)
($7,001,582.9)
($7,351,536.0)
($7,718,980.5)
($8,104,790.6)
($8,509,884.2)
Change in
Change in Other
Working
Assets and
Capital
Liabilities
($2,495,040.9)
$2,782,329.9
($2,331,551.0)
$2,893,623.1
($7,579,903.0)
$3,009,368.0
($6,753,610.2)
$3,129,742.8
($7,659,148.4)
$3,254,932.5
($8,685,474.3)
$3,385,129.8
($9,849,327.9)
$3,520,535.0
($11,169,137.8)
$3,661,356.4
($4,724,344.3)
$3,807,810.6
($4,960,476.4)
$3,960,123.0
($5,208,411.0)
$4,118,528.0
($5,468,737.8)
$4,283,269.1
($5,742,076.2)
$4,454,599.8
($6,029,076.7)
$4,632,783.8
($6,330,422.0)
$4,818,095.2
($6,646,829.1)
$5,010,819.0
($6,979,050.9)
$5,211,251.8
($7,327,877.9)
$5,419,701.8
($7,694,139.8)
$5,636,489.9
($8,078,708.3)
$5,861,949.5
($8,482,498.3)
$6,096,427.5
($8,906,470.6)
$6,340,284.6
($9,351,633.8)
$6,593,896.0
Financial Assumptions
•
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.
Financial Assumptions
•
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.
Model Inputs: Beta
•
•
The Beta of a project is primarily affected by three factors:
i. Business: in terms of business risk: medium level
–
–
–
•
ii. Operating Leverage:
–
•
The project has a highly leveraged structure which increases the risk. The book value of interest bearing
liabilities divided by the Stockholders’ Equity between 2006 and 2007 has been higher than 4 (4.9 and 4.2
respectively).
International Commercial Partners:
–
–
–
•
The project has high fixed costs compared to variable costs and thus represents a higher operational risk.
The major costs are depreciation and administrative expenses which is normal in the public infrastructure
sector
iii. Financial Leverage:
–
•
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: Santiago represents 32% of the overall Chilean population, the GDP of the zone encompasses
approximately 40% of the total Chilean GDP
Kapsch Group
SICE
Q-Free ASA
Involvement of Multilateral Agencies: none
Model Inputs: Beta
Company
Beta
Weight
Atlantia SpA
Abertis Infraestructuras SA
Transurban Group
Groupe Eurotunnel SA
Brisa Auto-Estradas de Portugal SA
Macquarie Group Ltd
ConnectEast Group
Zhejiang Expressway Co Ltd
Macquarie Korea Infrastructure Fund
Jiangsu Expressway Co Ltd
Average
Median
0.768
0.878
0.710
1.065
0.844
1.232
0.942
0.861
0.557
0.829
0.869
0.853
21.9%
20.8%
13.4%
12.0%
6.5%
6.0%
4.2%
3.9%
3.7%
3.4%
95.8%
Weighted
Stock
Beta
Market
0.168 FTSEMIB
0.182
IBEX
0.095
AS51
0.128
CAC
0.055
PSI20
0.074
AS51
0.039
AS51
0.034
HSI
0.021 KOSPI
0.028
HSI
0.824
Autopista Central Beta Calculation
β = [βEstimate x (2/3)] + [ 1 x (1/3)]
= [0.85 x (2/3)] + [1.00 x (1/3)]
= 0.90
We’ll use a range
of 0.90 to 1.00
Morgan Stanley Beta Adjustment Formula:
β = [βEstimate x (2/3)] + [ 1 x (1/3)]
Where:
β:
Beta of project
βEstimate: Estimated beta of project from comparables or other method
Equity Capital: Damodaran World
Modified CAPM
Calculation of Lambda
% of Revenues Derived Locally
100%
Lambda = ------------------------------------- = --------------=
Ave. % of Revenues Derived
100%
Locally for Similar Project
100% Weighting of Country Equity Risk Premium (Lambda = 1.00)
Project Beta
0.90
Rf
4.91%
Equity Risk Premium
4.58%
Lambda
1.00
Country Equity Risk Premium
2.10%
Modified World CAPM Cost of Equity Capital (USD)
11.13%
Cost of Equity (in Chilean pesos)
Project Beta
1.00
1.00
4.91%
4.58%
1.00
2.10%
11.59%
1.10
4.91%
4.58%
1.00
2.10%
12.05%
11.70%
0.90
12.18%
1.00
12.66%
1.10
Equity Capital: EHV Model
Equity Capital: EHV Model
Impact on
Country
Premium
Weights Score
0.40
0.10
0.15
0.05
0.05
0.05
0.05
0.05
0.03
0.05
0.03
9.50
7.00
-2.50
2.00
0.00
-1.00
0.00
6.00
8.00
4.50
-2.00
-3.61
-0.67
0.36
-0.10
0.00
0.05
0.00
Operating
-0.29 Resource risk
-0.19 Technology risk
Financial
-0.21 Probability of Default
0.05 Political Risk Insurance
1.00
Project Cost of Capital
Sovereign
Currency (direct, e.g. convertibility)
Currency (indirect, e.g. political risk caused by crisis)
Expropriation (direct, diversion, creeping)
Commercial International partners
Involvement of Multilateral Agencies
Sensitivity of Project to wars, strikes, terrorism
Sensitivity of Project to natural disasters
Sum of weights (make sure = 1.00)
15.47
Equity Capital: EHV Model
•
Currency risk: 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
•
Expropriation Risk: very low based on the high level of democracy reached in Chile, a direct
expropriation or a diversion seem to be improbable to happen while a creeping type of
expropriation could actually be implemented by the government though the use of fiscal
leverage
•
Sensitivity of the Project to Wars and Strikes: very sensitive to a war or to a terrorist attack
but with very low probability to happen
•
Natural Disasters: the project is very sensitive to natural disasters
•
Probability of Default: moderate as 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)
•
US Equity Risk Premium: based on the Global CFO Outlook Survey published by Professors
John Graham and Campbell Harvey of Duke University, in 2007 the Equity Risk Premium over
the 10-Year US Treasury Bond was estimated to be 4.58%
Capital Structure
• Bonds:
• 23-year, fixed-rate bonds were placed in both the local market as well as in
the US
• Local bonds: equivalent to USD 353 million (2003) were issued in an inflation
indexed currency (Unidades de Fomento ) the exchange rate of which was
published relative to the Peso (CLP) on a daily basis by the BCC.
• Bonds placed in the US: USD 250 million
• Common Equity: CLP 58 billion (aprox. USD 87M)
• Subordinated Debt (2007): USD 125M
WACC: Damodaran World Modified CAPM
Damodaran Modified World CAPM WACC's Sensitivity To Changes in Project Beta
WACC (in Chilean Pesos)
Cost of Equity
Equity/ Invested Capital
Cost of Debt
Debt / Invested Capital
a) Cost of Equity (in Chilean pesos)
Project Beta
Cost of Equity (in US $)
b) After Tax Cost of Debt (in Chilean Pesos)
Income Tax
Cost of Debt
6.74%
11.70%
20.8%
5.4%
79.2%
6.89%
12.18%
20.8%
5.5%
79.2%
7.03%
12.66%
20.8%
5.6%
79.2%
11.70%
0.90
11.132%
12.18%
1.00
11.590%
12.66%
1.10
12.048%
5.44%
17.0%
6.558%
5.50%
17.0%
6.626%
5.56%
17.0%
6.694%
WACC: EHV Model
EHV WACC's Sensitivity To Changes in Project Beta
WACC (in Chilean Pesos)
Cost of Equity
Equity/ Invested Capital
Cost of Debt
Debt / Invested Capital
a) Cost of Equity (in Chilean pesos)
Beta
Cost of Equity (in US $)
b) After Tax Cost of Debt (in Chilean Pesos)
Income Tax
Cost of Debt
7.79%
15.20%
20.8%
5.9%
79.2%
7.94%
15.68%
20.8%
5.9%
79.2%
8.08%
16.16%
20.8%
6.0%
79.2%
15.20%
0.90
14.463%
15.68%
1.00
14.921%
16.16%
1.10
15.379%
5.85%
17.0%
7.053%
5.91%
17.0%
7.121%
5.97%
17.0%
7.189%
Recommended Asking Price
•
We believe that ACS should ask for the highest value obtained in the Damodaran
Modified World CAPM model or $685 million.
•
We believe that Abertis and Santander should pay a control premium of 10 – 20%
given the macro economic conditions of the time and the strategic value that the
Autopista Central asset means for each prospective buyer.
•
By applying the 20% control premium to the highest range of the EHV based
valuation of $556 million, we obtain a value of $667 million.
•
This value is within range that ACS will be pressing to use under the more
favorable discount rate that using the Damodaran Modified World CAPM provides
them.
What Happened?
•
In December 2007 ACS agreed to sell both its 48% stake in Autopista Central as
well as its 50% ownership in another Chilean toll road to a consortium owned
57.7% by Abertis and 42.3% by Santander .
•
As part of the deal Abertis took over operational control of the day to day activities
of Autopista Central.
•
In total, Abertis and Santander paid $1.08 billion for the 50% stake in Autopista
Central (48% stake from ACS and 2% stake from minority shareholder) and the 50%
stake that ACS controlled in the additional toll road.
What Happened?
•
We estimate that the ACS’ 48% stake in Autopista Central was valued at just over
$620 million.
•
This value is within range that ACS will be pressing to use under the more
favorable discount rate that using the Damodaran Modified World CAPM provides
them.
Autopista Central
Q&A
Session