Western Harbour Crossing Essay

2679 Words Jul 4th, 2012 11 Pages
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ACF: Western Harbour Crossing

January 31, 2012

Executive summary
In our analysis of Western Harbour Crossing (“WHC”) we have aimed to address two questions: 1. 2. How much should GW pay for the assets? What is the likelihood of the transaction going through?

To answer question 1 we have decided to value the WHC asset using a CAPV methodology. The reasons behind choosing this approach have been the following: 1. The debt is changing over time as it matures and hence the capital structure changes making a WACC unsuitable for the valuation 2. We believe that this methodology captures in a more correct way the present value of the ITS emerging from the leverage

When applying the CAPV
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Based on project finance standards, if WHC is able to secure this leverage before construction, it should be able to secure at a minimum this level of leverage when it is operating. We have modelled the debt repayments assuming that WHC is able to retain the 68% debt to capital structure, as long as its future post interest cashflows are equal to 2.5 times the outstanding debt (as we do not have access to real covenant and debt restriction ratios). At that point, WHC would need to pay back the principle. Key Assumptions Debt to assets ratio DSCR Interest Expense ITS discount rate • 68% • Debt service coverage ratio of 2.5 • Repayment in order to keep this level • Historical cost of debt 7.0% • 9.3% in line with unlevered cost of equity (CAPV)

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CAPV valuation (continued)
HK$ '000 Debt outstanding (68% of PV of Cash flows) Post tax interest Expense Post interest FCF Debt Service

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