Western Harbour

Applied Corporate Finance

January 2013

Refinancing the Western Harbour Crossing, Hong Kong

Project Finance Valuation

Prepared By Section AA – Group 1:

Jose Carvalho

Cedric Daou

Ghaleb Samara

Gabriel Sfeir

Abhinav Sharma

Mayank Tayal

Executive Summary

Methodology & Detailed Calculations

The methodology can be divided into three main parts:

1) Revenue estimation

In order to estimate the revenues, the number of vehicles that will use the Western Harbour Crossing (WHC) needs to be estimated. For this, the number of registered vehicles in 2006 for each of the different categories was grown at the average historical rate of the last six years. The key driver for increased number of vehicles in any country is GDP growth, and Hong Kong, being a developed economy, is expected to have a stable growth.

Next, the number of vehicles that will use any harbour crossing in Hong Kong needs to be estimated. Our assumption here is that ratio of number of vehicles using these crossings to the number of registered vehicles will remain constant. A similar trend has been witnessed in the years 1995-2006. So, an average of this ratio can be used to forecast the number of vehicles using any of the three toll roads.

The next step is to estimate the share of vehicles using the toll roads that will come to WHC. Since the congestion points leading up to the WHC are expected to be cleared by 2011, the share of traffic will increase post 2011. Our assumption for share is that for 2007-11 it remains same as the historical average and then increase by 5-15% depending upon different categories.

The last step to calculate the revenue is to estimate the toll amounts. For 2007-11, we decreased the toll amount from 2006 level to the average of 2004-06 levels. This is meant to attract higher traffic to WHC. Starting 2011, we can expect the tolls to increase every four years (2011, 2015, 2019 and 2023). Since, the gross revenue is always lower than the minimum...