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The Fuqua School of Business at Duke University

FUQ-04-2010
Rev. April 30, 2010

Autopista Central, S.A.


The Valuation of a Toll Road Project in Chile
Manuel Flores arrived to his office in Madrid on Monday after a relaxing weekend spent with
his family. It was mid-November 2007 and Flores, senior vice-president of Business Development
for the Spanish construction and services company ACS, had spent the last three weeks visiting ACS
project sites in Latin America. Upon his return to Spain, he had had gone to a three-day
infrastructure and project finance conference in Majorca where many of the most important players
in the industry had been in attendance.
At the conference Flores was approached by Juan Albn from the toll-road and airport
operator Abertis and Sergio Sandoval from the private equity arm of Santander Bank who had an
interesting proposition for him. Specifically, Albn and Sandoval expressed considerable interest in
jointly buying ACS stake in a 61 kilometer toll-road that the firm had constructed and was now cooperating in the Chilean capital of Santiago. ACS had a 48% equity stake in this venture known in
Chile as Autopista Central or Central Highway which had received investment of more than USD
800 million by 2007.
Although some had recently begun to speculate that world asset prices had reached a peak,
companies like Abertis and Santander still had appetite for infrastructure projects that they viewed as
being relatively safe investments. Flores, Albn, and Sandoval had had a series of informal meetings
regarding Autopista Central at the conference in which the group decided that Flores would discuss
the idea of a sale of ACS stake with the firms CEO, Florentino Prez, as soon as possible.
Regardless of Prezs and the Boards decision regarding a potential sale of the asset, Flores knew he
and his team would have to spend the next few weeks valuing the toll-road.
As Flores sat down at his desk in Madrid, he pondered a major question regarding the
valuation ahead of him. Specifically, how should he determine the projects cost of capital in a
market where limited access to reliable information and the presence of market inefficiencies violate
many of the assumptions of the Capital Asset Pricing Model? Given the size of the potential deal,
he would have to travel to Chile to better assess the risks that he should include in his discount rate.
He knew he could not falter with two big players like Abertis and Santander and he sighed as he
picked up the phone to call his wife to tell her that their family vacation would have to be postponed
for another two weeks.

This case was prepared by David Keller, Belisario Galarcep, Massimo Paone, and Javier Vilardell for the course Advanced
Topics in Corporate Finance under the supervision of Professor Campbell R. Harvey and was written as a basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Copyright 2010 - all rights reserved. The Fuqua School of Business, Duke University, 1 Towerview Drive,
Durham, NC 27705, USA. http://faculty.fuqua.duke.edu/~charvey/Cases/index.htm .

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Chile: A Brief History


Prior to the arrival of the Spanish in 1536, present day Chile was inhabited by around
500,000 indigenous people who lived in a series of interconnected villages throughout the country.
The Spanish effectively annexed the territory in 1540 and in this year established the present day
capital of Santiago. From Santiago the Spanish managed their economic and political interests in
Chile. The colony never was as profitable as some other Spanish colonies in Latin America such as
Peru or Mexico and the Spanish crown remained largely disinterested in Chile until the late 18th
century.
As was the case in many Latin American colonies, the people of Chile grew tired of Spanishimposed rules and regulations and formally declared independence on September 18, 1810. Actual
independence was not achieved until 1818 upon which the country descended into a brief period of
relative anarchy.
In 1879 a conflict with Chiles neighbors to the north, Bolivia and Peru, over the ownership
and development of nitrate reserves led to a war between Chile and the two nations (see Exhibit 1
for a map of the region). Chile was victorious in the conflict and took control of a large swath of
Bolivian and Peruvian territory that resulted in an increase of Chiles territory by one-third. In the
exchange, Bolivia lost all of its coastal territory and Peru lost the maritime rights over rich fishing
waters, events that continue to be a source of considerable Bolivian and Peruvian resentment with
Chile even today.
After the War of 1879, Chile entered into a period of considerable economic expansion led
by growth in its mining and manufacturing industries. Much of this development was made possible
by foreign loans and a state-run economy that permitted the rise of an urban middle class. The
centrally controlled economy was unable to transition to the trend towards market-based reforms
that began in the early 1900s and consequently the country experienced flat economic growth and
periods of high inflation during this time. In 1964, Eduardo Frei of the center-left Christian
Democratic Party (PDC) won the presidency and initiated a series of radical reforms including
agrarian reform and the nationalization of many of the countrys copper mines.
Following a particularly acute recession that began in 1967, Chile elected the socialist
Salvador Allende of the Popular Unity Party (UP) in 1970 in a hotly contested election against the
U.S.-favored Conservative Party candidate, Jorge Alessandri. Upon taking control, Allende
nationalized many of the countrys businesses and banks and instituted a series of reforms aimed at
redistributing wealth to the lower classes. As a result, foreign and national investment in Chile dried
up and the nation became very polarized between the left and the right. Some on the right called for
open military intervention to remove Allende and received support from the U.S. who, under the
back drop of the Cold War, was interested in thwarting any resemblance of communism in the
Western Hemisphere.

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On September 11, 1973, a military coup led by the commander-in-chief of the Chilean
military, General Augsto Pinochet, and the covert support of the U.S., removed Allende from power
in an attack on the presidential palace in which Allende took his own life. Under Pinochet all
political activities were suspended and a brutal campaign to eliminate all left-wing opposition was
undertaken. Pinochet declared a permanent state of emergency in which congress was dissolved and
all left-wing parties were banned. Over the following 15 years, more than 2,000 people were killed
by the Pinochet regime while thousands more were arrested or tortured. During this period the
governments role in the management of the economy was drastically reduced as the regime
privatized most industries even though it maintained strict control over any political activities.
The beginning of the 1980s saw the Pinochet regime gradually permitting more free speech,
freedom of assembly, and political associations which eventually set the stage for a 1988 national
referendum on the future of Pinochets rule. Pinochet lost the referendum and respected the
results. Chileans then elected Patricio Alywin of the PDC party in 1989 who would go on to govern
Chile in a transition government from 1990 to 1994. All post-Pinochet presidents of Chile, Eduardo
Frei (1994-2000), Ricardo Lagos (2000-06), and the current president, Michelle Bachelet have been
affiliated with a center-left association of parties known as the Concertacin or The Agreement1.

Chile: The Economy


Chile averaged 4.4% real GDP growth between 2002 and 2006. Such steady and robust
growth was partially facilitated by the introduction of a broad reaching fiscal reform in 2000. This
reform reduced the volatility of GDP growth. Real GDP rose from a 2.2% rate in 2002 to 3.9% in
2003, averaged 5.9% in 2004-05, and then fell to 4% in 2006. Starting in about 2003, soaring global
demand and the resulting increase in commodities prices boosted the Chilean economy. In addition,
relatively cheap and available worldwide credit contributed to significant increments in investment in
Chile. Notwithstanding a robust growth in exports, between 2003 and 2007 the contribution to
growth from the external sector resulted in a negative balance of trade as private consumption grew
steadily as a consequence of higher levels of employment and a stronger local currency. The
countrys GDP decreased in 2006 mainly due to a one month strike at the worlds largest copper
mine (Chile is the worlds largest producer of copper having around 1/3 of total world reserves). At
the same time, growth was hampered by rising energy costs due to a unilateral cut in Chiles gas
supplies by its neighbor, Argentina. On the supply side, the most dynamic economic sectors until
2006 were communications, financial services, and agriculture and forestry. In 2007 GDP was on
track to grow around 5% even in light of tighter monetary policy implemented by the government
that was aimed at dampening private consumption.

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Chile: Monetary Policy


The independent Banco Central de Chile (The Central Bank - BCC) manages the monetary
policy of Chile and has reached an international degree of credibility. The BCCs main aim is to
keep inflation at 3% - with a one percentage point margin of error - over a two-year horizon. A
liberalization of the exchange regime of the countrys currency, the Chilean Peso, was pursued in the
1990s and was finalized in 2001. To further support the Peso, the BCC has a good track record of
providing liquidity to the market and ironing out excessive daily volatility. In a move away from
inflation adjusted interest rates, in July 2001 the BCC adopted a nominal target interbank rate of
6.5%. The previous real interest rate was 3.5% and was based on an underlying inflation of 3%.
The new 6.5% nominal rate improved the quality of the monetary policy which is now better aligned
with international interest rate movements. In a situation of low inflation and global expansion, the
interbank rate went down to an unprecedented low of 1.75% by the end of 2004. Subsequent
inflationary pressures led the BCC to tighten monetary conditions raising the interbank rate to
5.25% in 2006.

Chile: Transportation Infrastructure


Chile has good transport infrastructure and a large highway coverage which connects the
whole country with the exception of the Magallanes region. The road network has undergone
substantial improvement since 1990, with the privatization of the construction and maintenance of
commercially viable roads through build-operate-transfer (BOT) concessions. This policy has
yielded a modern motorway network between La Serena and Puerto Montt, the area where over
90% of Chileans live.
BOT concessions are also being used to build urban toll roads in Santiago, Valparaso and
Concepcin. Chile's Ministry of Public Works (MOP) has asked highway concessionaires to submit
proposals to integrate toll systems in order to expand the toll road network through the rest of the
country. Currently in Santiago drivers are tolled through the use of a free-flow electronic system
that allows toll collection to take place without the delays and safety hazards created by traditional
toll booth facilities. In Santiago, the pending Costanera Norte toll road and Autopista Central will
together form the first 'smart' toll road system of its kind in the region. Taking advantage of the
concession practice and project finance, the government has consequently been able to focus on
upgrading secondary, unpaved roads, while constructing new ones. It aims to increase the network
of paved roads to 25,000 Km by the end of 2010.

Chile: Santiago
With an urban population of nearly seven million people, Santiago is by far the largest city in
the country. Chiles sustained economic prosperity has enabled the city to become one of Latin
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Americas most modern metropolitan areas. Santiago is home to a number of foreign and Chilean
multinational companies who often use the city as a base for other South American operations. The
area contains approximately 40% of Chiles total population and accounts for nearly 43% of
domestic GDP.2
The metropolis is located in a large, bowl-shaped valley surrounded by a number of
volcanoes. Although most of the volcanoes surrounding Santiago are inactive, a few of them
periodically erupt and give the city a light dusting of ash. The whole country of Chile lies along the
fault line formed by the Nazca and South American tectonic plates. As a result, the country has
frequent temblors and occasional earthquakes. An earthquake that registered 8.0 on the Richter
magnitude scale affected Santiago on March 3, 1985 killing 177 people and destroying 142,489
houses3. An earthquake of this level of devastation had not been registered since 1985.
Santiago has a continental Mediterranean climate which is characterized by a six month rainy
season followed by a six month dry season. Roughly 80% of the citys precipitation falls from the
months of May to September. Storms with steady and prolonged rainfall during May and June can
cause low-scale flash flooding in different sectors of the city as storm drains struggle to discharge
rainwater.
Around 800,000 vehicles use the roads on any given workday in Santiago which represents
nearly 43% of all of the total number of vehicles registered in the country.4 Santiago is composed of
a series of complex streets that are overlaid by three inter-urban highways that connect the extremes
of the city; the Vespucio highway surrounds the city, Autopista Central traverses the city from North to
South, and the soon to be completed Costanera Norte will connect the Eastern side of the city with
the Western side and provide easier access to the citys international airport.
In addition to highways as a means of mobilization, Santiago has South Americas most
extensive subway system. In February of 2007, Santiagos much touted TranSantiago public transport
system was launched. The system, which consists of more than 8,000 buses, aims to serve as a
feeder for the constantly growing Santiago subway system. TranSantiagos first few months were
marred by a series of problems owing to the design and implementation of the system that led to
street protests. Consequently, President Bachelet has made the resolution of TranSantiagos problems
a top priority for her administration.

Autopista Central: Project Background


In 1993 the Chilean government unveiled the Public Works Concession System (PWCS) as a
means of providing the legal framework and economic incentives to modernize Chiles national
infrastructure. As a result of the PWCS, over 50 infrastructure projects were developed between
1993 and 2007 with private investment in these projects totaling more than $8 billion.

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The concept for Autopista Central, or Central Highway in Spanish, was first devised in 1995
as part of the countrys round of urban projects known as the First Urban Concession Program.
The proposed highway system, known as the North-South System at the time, had the objective
of upgrading the city of Santiagos North-South road network through six high-standard highways
that would run through the main transportation corridor of the city. To minimize traffic congestion,
the government wanted the system to be operated by means of a modern free-flowing tolling system
that would allow vehicles to enter and exit without having to stop at tollgates.5 A diagram of the
completed highway system can be found in Exhibit 2. The system was to be part of an integrated
system of five highway concessions that have been awarded to private sector consortia in the
Santiago area worth a total of $ 15 billion.
The design and approval process of the plans to build the proposed North-South System
took more than five years. Such time was inevitable given the large number of engineering and urban
planning concerns that the project would confront upon building 61 kilometers of roads and
accompanying infrastructure through a tangled urban jungle. Amongst other works, the project
involved the construction of 106 bridges, 28 km of concrete walls, and 2,636 meters of cut- and
cover-tunnels, all of which are designed to withstand strong earthquakes that are typical of the
region (see Exhibit 3 for a description of the scope of the work).
In January 2001, the Chilean Ministry of Public Works awarded the North-South project
construction and subsequent operation to a consortium of companies called Sociedad Concesionaria
Autopista Central, SA (Autopista Central). The concession awarded by the government was for a
period of 30 years with the final works of the project to be completed by 2007. Construction of the
project was done in phases and completed eight months ahead of schedule in April of 2007 and, per
the concessionary agreement, routine maintenance is performed by Autopista Central as needed. The
first tolls of Autopista Central were collected on December 1, 2004 and the system became fully
operational in May 2006.
Autopista Central was formed and is controlled by a group of construction and project
developers including the Spanish company Actividades de Construccin y Servicio, SA (ACS), the Swedish
company Skanska AB (Skanska), and the Chilean companies Empresa Constructora Belfi, SA (Belfi) and
Empresa Constructora Brotec, SA (Brotec). See Exhibits 4a and 4b for a detailed breakdown of each
companys stock ownership in Autopista Central.
Finally, it was noted that, although Autopista Central was one of a kind, the sale of such an
asset was reasonably undertaken in Chile and that there was a fair number of multinational
counterparties that might be interested in such a project.

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Owners: ACS
ACS is a Spanish construction and civil engineering firm which specializes in the building of
infrastructure projects throughout the world. The company was formed at the end of 1997 as a
result of a merger between two well-established Spanish construction companies. ACS is
headquartered out of Madrid and has operations in 42 countries throughout the developed and
developing worlds. The firm has leveraged the cultural and language of Spain to establish a strong
presence in 15 countries in the Latin America region (see Exhibit 5 for a list of countries where
ACS has operations).
ACS has experienced exceptional growth since recording 1998 revenues of $2.5 billion ( 2.5
billion) . In 2006 the company recorded revenues of $18.3 billion ( 14.1 billion), net income of
$1.6 billion ( 1.3 billion), and had a market capitalization of $19.6 billion ( 15.1 billion) as of
December 31, 20067. The year 2007 was characterized by a continuation of historically low global
interest rates and seemingly limitless liquidity (see Exhibit 7 for a graph historical USD LIBOR
rates). As a result, the construction sector and ACS were on track for a record year in 2007. Early
company projections estimated the firms 2007 annual revenues to be on the order of $31 billion
( 21 billion) (see Exhibit 6 for historical financials of ACS).
6

The companys CEO was the well-known Spanish businessman Florentino Prez. Mr. Prez
is perhaps most well known in the popular press for being the President of the Real Madrid football
club from 2000-06 during which he paid extremely high transfer fees to bring some of the worlds
most elite football players to the club. ACSs shares are listed on the Madrid Stock Exchange with
the public float of its shares comprising 51.5% of the company (see Exhibit 8 for a list of ACS
shareholders).

Owners: Skanska
Skanska was originally founded under the name Aktiebolaget Sknska Cementgjuteriet in the year
in 1887 in the city of Malm, Sweden. The company initially only produced concrete products but
quickly expanded into the construction industry and is credited with building many of Swedens
biggest infrastructure projects over the last century. With headquarters in Stockholm, the company
now operates in South America, Africa, the U.S., and Asia building projects in the areas of roads,
power plants, office buildings, and residential housing.8
Shares of Skanska trade on the Stockholm Stock Exchange (OMX) and are widely held by
pension funds as well as the public (see Exhibit 9 for a list of Skanskas shareholders). In 2006, the
company recorded revenues of $17.0 billion (SEK 125.6 billion) and $0.7 billion (SEK 5.0 billion) in
Net Income.9 Early estimates indicate that the company will generate $20.5 billion (SEK 138.8
billion) in revenues in 2007 translating into approximately $0.8 billion (SEK 5.7 billion) in total net

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

income.10
billion).

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In November of 2007 the companys market capitalization was $8.0 billion (SEK 51.1

Buyers: Abertis Infraestructuras, SA (Abertis)


Headquarted in Barcelona, Abertis specializes in the management and operation of toll roads
and airports. The companys stock is listed on the Madrid Stock Exchange and in 2006 Abertis
reported revenues of $4.2 billion ( 3.2 billion) with net income of $0.7 billion ( 0.5 billion).
Abertis was benefitted favorably by the economic conditions of 2007 and was on track to produce
$5.2 billion ( 3.5 billion) in revenues and nearly $1.0 billion ( 0.7 billion) in net income in the same
year.
The company operates over 6,500 kilometers of toll roads in Europe as well as more than a
dozen airports in cities including London, Stockholm, and Orlando.11 In Chile, Abertis has a well
established presence. In the highway arena, the company already operates two large toll roads. In
addition, Abertis operates the Santiago airport and a handful of parking lots and logistics parks in
the country.12 Abertis saw Autopista Central, a highway that was estimated to be used at least once a
month by 65% of the vehicles in the Santiago metropolitan region13, as an asset that would be highly
complementary to its current infrastructure portfolio in Chile.

Buyers: Santander Bank (Santander)


At the beginning of 2007, Santander was the worlds 12th largest bank as measured by total
market capitalization.14 The banks head office is located in Santander, Spain but its shares are
traded globally. Stock in Santander is publically traded on exchanges in Madrid, Milan, New York,
Lisbon, Buenos Aires, Mexico City, and London reflecting the banks heavy influence in Europe and
Latin America. In 2006 Santander recorded revenues of $69.4 billion ( 53.4 billion) and net income
of $7.9 billion ( 6.0 billion). Record liquidity in the financial system and customer demand for
cheap and plentiful credit were combining to make 2007 the best year in Santanders 150 year history
as a company. The bank estimated 2007 revenues would approach $90.8 billion ( 62.2 billion)
resulting in $11.4 billion ( 7.8 billion) of net income.
In Chile, Santander is the largest bank in terms of total assets, loans, and shareholders
equity. Santander established a presence in Chile in 1982 when it acquired Banco Espaol Chile. The
bank has experienced strong growth since then and now serves both corporate and retail clients with
a wide variety of services from checking accounts and consumer loans to sophisticated investment
banking advisory and investment management.15
Santander Private Equity (SPE) is the private equity unit of Santanders Asset Management
group and has been in operation since 2004. SPE specializes in infrastructure funds and fund of
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funds which offer risk adjusted returns to investors.16 In 2004, SPE raised a $228 million ( 185
million) infrastructure fund called Santander Infraestructuras I (SI 1) which invested in a select number
of infrastructure projects. The fund sought to benefit from investing in projects that had
government support in Europe and Latin America such as roads, ports, and water systems.
Investment in SI 1 was oversubscribed and generated a solid return and Santander soon starting
planning a second infrastructure fund, Santander Infraestructuras II (SI 2). SI 2s equity target was $2.1
billion ( 1.5 billion) with the bank estimating its own contribution at 10% of the total and by the
end of December 2007 the SPE had already lined up $500 million ( 857 million) in limited-partner
commitments. Although SPE had not raised the total of amount of equity for the SI 2, the group
was looking to invest in its first projects which could then be passed to the new fund upon reaching
the targeted equity level. Given its knowledge of the Chilean market, Autopista Central was exactly
the kind of project that Santander wanted to add to its portfolio which it hoped to do at an attractive
price.

The Capital Structure of Autopista Central


In November of 2003, before construction on Autopista Central had initiated, the consortium
of owners prepared a schedule of the sources and uses of funds that they estimated the project
would require (see Exhibit 10).
The schedule initially called for USD 552 million in public bonds but this number would
eventually rise to USD 603 million when the projects bonds were finally placed in December of
2003. The 23-year, fixed-rate bonds were eventually placed in both the local market as well in the
US given the relative costs of each market, the currency denomination of the toll roads revenue, and
the local bond markets capacity for debt issues. The local bonds (equivalent to USD 353 million in
December 2003) were issued in an inflation indexed currency called Unidades de Fomento (UF) or
Development Units the exchange rate of which was published relative to the Peso (CLP) on a
daily basis by the BCC. The bonds placed in the US totaled USD 250 million and were sold mostly
to institutional investors via a private placement. See Exhibit 11 for the details and the
characteristics of each bond issue and Exhibit 12 for historical CLP/UF and CLP/USD exchange
rates.
In addition to the CLP 58 billion (roughly USD 87 million) of equity that investors
capitalized Autopista Central with, the consortium also contributed subordinated debt to the project.
By late 2007, Autopista Centrals subordinated debt totaled roughly USD 125 million which was
equally contributed between ACS and Skanska. The subordinated debt allowed the consortium to
achieve favorable fiscal benefits when repatriating profits from the project and, although this
investment was technically not equity, ACS and Skanska treated it as such for cost of equity
purposes.

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Financial Projections of Autopista Central


Autopista Central had experienced a significant ramp up in revenues and profits over the ast
year as many of the toll roads pending sections came on line and consumers become more
accustomed to utilizing the new free flow tolling system. After a few days of working with his
colleagues in Chile, Flores was able to put together the financial projections included in Exhibit 16.
The projections incorporated the fact that the consortiums concession with the government would
end in 23 years upon which the owners would liquidate any remaining owners equity in the venture.
The assumptions that were used in the projections are included in Exhibit 17.

Debating the Calculation of the Cost of Equity Capital


Flores had many alternatives to select from when choosing how to calculate the appropriate
cost of capital for the Autopista Central project and thus the value of ACS stake in the partnership.
One possibility was the use of method based on the Capital Asset Pricing Model (CAPM).
Unfortunately, the use of the CAPM was not so straight forward in an emerging market like Chile
and given some of the unique idiosyncratic risks that the toll-road project presented. For example,
Flores knew that he did not want to use the same corporate cost of capital that was used by ACS
headquarters to evaluate projects that the company built in Spain. By using this Identical Cost of
Capital method, Flores would assign too low of a discount rate to the projects cash flows thereby
arriving at a price that would be unrealistically high and undoubtedly unpalatable for both Abertis
and Santander.
Alternatively, some multinational firms advocate the use of a World CAPM methodology to
calculate discount rates. In the World CAPM, managers use historical returns on local debt and
equity markets as well as the returns generated by comparable local firms and industries as the inputs
for the CAPM to produce a local cost of capital. Unfortunately, this technique erroneously assumes
that all markets are integrated (i.e., no inefficiencies) which is clearly not the case for most emerging
economies. As a result of the inefficiencies present in these markets such as regulatory and tax
barriers, limited historical information, undiversified or non-existent equity markets, and illiquidity,
the inputs of the World CAPM are largely rendered insignificant and therefore make use of this
approach infeasible.
Flores recognized that the Chilean market could be considered one of the most integrated
emerging economies in the world and therefore thought about using a Modified World CAPM
approach which adjusts the cost of equity capital obtained in the traditional CAPM by a country
equity risk premium (CRP) to account for the inherently higher risk associated with operating a
business in Chile.
One such modified CAPM method that Flores had considered using was that of Aswath
Damodaran. With Damodarans technique, the CRP is weighted by a factor, lambda, to recognize
that not all businesses and projects are equally affected by sovereign risks. 17 The most practical
manner to calculate lambda is to divide the percentage of revenues that the firm derives locally by the
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average percentage of revenues that a firm in the same industry derives locally. By the end of 2007,
Damodaran estimated the CRP of Chile to be 2.10%.18
Flores recognized, however, that Abertis and Santander would not likely agree on using the
Damodaran modified CAPM model. Specifically, the Damodaran method would most certainly
yield the lowest Weighted Average Cost of Capital (WACC) for the project and therefore the highest
valuation. He knew that the prospective buyers would most certainly seek a model that would
generate a higher cost of capital by capturing some of the specific project-level risks associated with
the Autopista Central.
In particular, he had gotten wind that a couple of associates at Abertis and Santander had
recently been using a cost of capital methodology they had picked up while taking an MBA course
at Duke Universitys Fuqua School of Business. The method was based on a research article published
by Erb, Harvey, and Viskanta in the Journal of Portfolio Management in 199519 which showed that the
monthly country credit ratings published by Institutional Investor magazine are good ex-ante measures
of country risk. That Institutional Investor credit ratings are good proxies of sovereign risk is quite
intuitive given that the ratings encompass to varying degrees risks such as political risk rating
(including government stability, socioeconomic conditions, investment profile, internal conflict,
external conflict, corruption, military in politics, religion in politics, law and order, ethnic tensions,
democratic accountability, and bureaucratic quality), financial risk rating (including foreign debt as a
percentage of GDP, foreign debt service as a percentage of export of goods and services, current
account as a percentage of exports of goods and services, net international liquidity as months of
import cover, and exchange rate stability), and economic risk rating (including GDP per capita, real
GDP growth, annual inflation rate, budget balance as a percentage of GDP, and current account as
a percentage of GDP)20.
Based on their findings, the researchers went on to develop a cost of capital model that
utilizes Institutional Investor credit ratings of the country being evaluated as well as that of the US, the
US risk-free rate, the US market-risk premium, the yield spread or sovereign spread of the country being
evaluated, and the Beta () of the industry in which the project or company operates in.
Furthermore, the model permits Flores to make a series of adjustments to account for the projects
incorporation or lack of certain risk mitigating factors (see the Erb, Harvey, Viskanta Cost of Capital
Calculator
in
the
accompanying
Microsoft
Excel
spreadsheet
<<Autopista_supplementary_spreadsheets.xls>>). Flores felt that by using this model he
would be able to determine the likely price range that Abertis and Santander would be seeking for
ACS stake in Autopista Central.

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Qualitative and Quantitative Inputs for the Erb-Harvey-Viskanta Cost of Capital Model
Currency Risk
The currency risk for Chile is 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 and
by a political environment that has facilitated the growth of Chilean democracy through the ability
of achieving the goals of the declared policies. In addition, there is a popular approval and
satisfaction with the governments policies. This increases the quality of socioeconomic conditions
and consequently the countrys stability.

Expropriation Risk
Based on the high level of democracy reached in Chile and the scarce past intervention of
the government in redirecting or changing rules within the free market and the private sector over
the last 30 years, a direct expropriation or a diversion seem to be improbable to happen. A creeping
type of expropriation could actually be implemented by the government though the use of fiscal
leverage. This type of expropriate might be caused simply because the return on the investment is
considered too high or due to deteriorated economic and financial conditions which would force the
government to increase the tax bracket in order to reduce current deficit or debt interest payment.

Sensitivity of the Project to Wars and Strikes


Autopista Central lies in the heart of Santiago. Although the project would be very sensitive
to a war or to a terrorist attack, the probability of this type of event to happen is very low due to the
strong Chilean economy as well as a strong military force that mitigates these risks. Potential strikes
or civil demonstrations could adversely affect the asset although the electronic toll system would
reduce the risk and the lack of revenue collection.

Natural Disasters
Finally, the project is very sensitive to natural disasters. Specifically, given Chiles location in
a strongly seismic area, the probability of an earthquake is very high thus the risk is also high.
Nevertheless, the firm has insurance to protect against financial losses caused by natural disasters
and thus this risk is mitigated.

Probability of Default

12

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

In mid-2007, Autopista Centrals credit rating was raised by Standard & Poors (from BBBstable to BBB- positive) and Moodys (from Baa3 to Baa2). The rating agencies initiated the
upgrades citing positive upsides for the projects revenues, the successful implementation of the toll
roads electronic tolling system, and a sound financial position.21 The projects rating was good but
still lower than Chiles sovereign credit rating which stood at A and A2 as rated by Standard &
Poors and Moodys, respectively.22

US Equity Risk Premium (ERP)


Based on the Global CFO Outlook Survey published by Professors John Graham and
Campbell Harvey of Duke University, in 2007 the ERP over the 10-Year US Treasury Bond was
estimated to be 4.58%.23

The Project Beta


The beta of a project is primarily affected by three factors:
i.

Business: in terms of business risk, it has a medium level because of the following
factors.
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:
o Santiago represents 32% of the overall Chilean population.
o The GDP of the zone encompasses approximately 40% of the total Chilean
GDP.
o Users of the North and South corridor represent 35% of all the city vehicles.
o At least 65% of the vehicles from the Metropolitan area pass through the
North and South corridor once per month.
o In market surveys 24, citizens of Santiago (potential users) demonstrated that
they increasingly will use Autopista Central.
o The usage of the road is highly correlated with the economy of Chile which
has been stable and growing.

International Commercial Partners


Besides the international shareholders mentioned above, Autopista Central has a number of
international suppliers which include the following:
13

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Kapsch Group: Headquartered in Vienna, the Kapsch Group is one of the market leaders
in the European traffic telematics and communications industries.

SICE: SICE is a Spanish firm that provides services and integrating technologies in the
fields of Intelligent Transport Systems and Environmental Control Systems.

Q-Free ASA: Q-Free ASA is a Norwegian supplier of solutions and products for Road User
Charging and Traffic Surveillance having applications mainly within the electronic toll road
collection space. The companys products and services include congestion charging, trucktolling, law enforcement and parking/access control.

Involvement of Multilateral Agencies


No multilateral agencies have stakes in or provide operational advice for Autopista Central.

Resource Risk
The most important resources for toll roads during the pre-completion stage are basic
construction materials (cement and steel). These elements are highly important, but during the postcompletion stage the importance of this supply is lower compared to the previous stage.
The cement market in Chile is an oligopoly of three companies that have operations
centered on the Santiago25 metropolitan area.
In the case of steel, it is also an oligopoly of two firms. Nearly 70% of the steel that is
utilized in Chile is produced locally while 30% is imported from Brazil, Argentina, and Ukraine26.
Considering the stage of the project, the availability of the resources, the suppliers and the location
of the project, the resource risk is low.

Inflation
The 2007 inflation rates for the U.S. and Chile were 2.19% and 7.40%, respectively,27 and the
inflation rates of both countries were projected to remain relatively stable going forward. In the case
of revenues, the firm has low risk because the concession that Autopista Central has with the Chilean
government permits fee adjustments to cover inflation. Similarly, the consortiums bonds that were
issued in Chile which were issued in the inflation-indexed government regulated Unidades de Fomento
(see Exhibit 11 for more information on Unidades de Fomento). The aforementioned adjustments of
both revenues and debt serve to match the firms inflows with its outflows.
14

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

CASE QUESTIONS

1. Use the Damodaran Modified World CAPM model mentioned in the case as well as the
Erb, Harvey, Viskanta Cost of Capital Calculator to estimate a range of possible values for
ACS stake in Autopista Central.
NOTE:
The
accompanying
Microsoft
Excel
spreadsheet
file
<<
Autopista_supplementary_spreadsheets.xls >> is an integral part of this case and
necessary to complete the calculations solicited in Question 1.

2. Given your valuation results from Question 1, the macroeconomic conditions of the time,
each players strategic interests, and other factors mentioned in the case, how much should
Flores ask Abertis and Santander for ACS stake in Autopista Central?

15

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

EXHIBITS
Exhibit 1 Map of Chile28

16

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 2 Diagram of the North-South Axis and General Velsquez Axis which compromise the
Autopista Central highway project of Santiago.29 Note that the project will connect to Santiagos other
main highways.

17

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 3 Scope of the Autopista Central project


Installed Infrastructure
60 km of motorway
12 overpasses and 31 underpasses
6 motorway interchanges
4 bridges
2 emergency service areas
1.2 km of tunnel
3.1 km of semi-covered and covered trenches
155 emergency roadside telephones
900 traffic logging counters
Two high-speed weigh-in-motion sites
One traffic control room, manned 24/7
One fiber optic-based communications backbone installed along the length of the motorway
to carry voice and data
52 Electronic sign panels
100 cameras along the road
150 data collection stations

18

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 4a Stock ownership of the Autopista Central consortium as of December 31, 200730
Sociedad Concesionaria Autopista Central, SA ("Autopista Central")
Shareholder
Inversora de Infraestructuras, SL
Skanska Kommersiell Utveckling Norden, AB
Inversiones Nocedal, SA
Skanska Infrastructure Development (Chile), SA
Empresa Constructora Belfi, SA
Empresa Constructora Brotec, SA
TOTAL

No. of Shares
14,500,000
14,198,400
13,340,000
13,641,600
1,160,000
1,160,000
58,000,000

Interest %
25.00%
24.48%
23.00%
23.52%
2.00%
2.00%
100.00%

Exhibit 4b Graphical representation of the ultimate ownership of Autopista Central as of


December 31, 2007
ACS
100.0%

Inversora de
Infraestructura
s

100.0%

Inversiones
Nocedal

23.0%

Empresa
Constructora
Brotec

100.0%

Skanska Kraft

100.0%

25.0%

Empresa
Constructora
Belfi

Skanska

100.0%

Skanska
Kommersiell
Utveckling
Norden

Skanska
Infrastructure
Development
(Chile)

24.5%

23.5%

2.0%

2.0%

Sociedad Concesionaria Autopista Central

19

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 5 The Global Operations of ACS31


Algeria, Andorra, Angola, Argentina, Australia, Belgium, Brazil, Cameroon, Canada, Chile, China, Colombia, Costa Rica, Dominican Republic,
Ecuador, Egypt, El Salvador, Ethiopia, France, Germany, Greece, Guatemala, Honduras, India, Ireland, Italy, Jordan, Libya, Mexico, Morocco,
Nicaragua, Panama, Peru, Poland, Portugal, Saudi Arabia, South Africa, Spain, United Arab Emirates, United Kingdom, United States, and Venezuela.

20

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 6

ACS: 3-Yr Historical Financials


Scaling Factor : 1000000 EUR
3 YR BALANCE SHEET
ASSETS
Cash And ST Investments
Receivables (Net)
Total Inventories

12/31/06

Source: ThomsonFinancial
Currency: EUR
12/31/05
12/31/04

2,807.58
6,487.66

2,045.28
5,541.52

1,590.15
5,176.53

738.26

553.56

403.56

Other Current Assets

0.00

0.00

25.35

Current Assets - Total

10,078.01

8,176.75

7,195.59

Other Assets

1,250.20

1,174.57

1,294.30

Total Assets

24,823.99

17,376.41

12,575.81

LIABILITIES & SHAREHOLDERS'

12/31/06

12/31/05

12/31/04

Accounts Payable

6,181.34

6,568.66

5,507.64

ST Debt & Current Portion of LT Debt

1,433.03

1,249.61

1,099.55

908.21

715.02

#N/A

Other Current Liabilities

2,373.65

553.20

1,243.47

Current Liabilities - Total

11,205.95

9,302.56

7,850.66

Long Term Debt

10,120.90

5,017.40

1,928.68

Other Liabilities

114.48

135.46

183.18

Total Liabilities

21,492.35

14,496.78

10,235.20

140.67

154.61

119.10

0.00

0.00

0.00

3,115.69

2,480.91

2,070.30

Income Taxes Payable

Shareholders' Equity
Minority Interest
Preferred Stock
Common Equity

2,352.14

1,380.41

748.20

Total Liabilities & Shareholders' Equity

Retained Earnings

24,823.99

17,376.41

12,575.81

3 YR INCOME STATEMENT

12/31/06

12/31/05

12/31/04

Net Sales or Revenues

14,067.17

12,113.89

10,960.66

Cost of Goods Sold

11,922.15

10,101.48

9,186.58

Depreciation, Depletion & Amortization


Gross Income
Selling, General & Admin Expenses

280.91

230.14

315.44

1,864.11

1,782.27

1,458.64

#N/A

#N/A

#N/A

13,834.95

11,744.11

10,705.74

Operating Income

232.23

369.78

254.92

Non-Operating Interest Income

186.35

83.23

64.87

2,057.38

1,003.16

773.54
150.07

Operating Expenses - Total

Earnings Before Interest And Taxes (EBIT)


Interest Expense On Debt
Pretax Income
IncomeTaxes
Minority Interest
Equity In Earnings
Net Income Before Extra Items/Preferred Div
Extr Items & Gain(Loss) Sale of Assets
Net Income Before Preferred Dividends
Preferred Dividend Requirements
Net Income Available to Common

413.01

198.85

1,644.38

804.31

623.47

370.96

171.33

145.98

23.32

24.32

17.10

#N/A

#N/A

#N/A

1,250.09

608.66

460.39

0.00

0.00

0.00

1,250.09

608.66

460.39

0.00

0.00

0.00

1,250.09

608.66

460.39

21

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 6 (Continued)
12/31/06

3 YR CASH FLOW STATEMENT


Net Income / Starting Line

12/31/05

12/31/04

1,250.09

608.66

#N/A

Depreciation, Depletion & Amortization

#N/A

#N/A

315.44

Deferred Income Taxes

#N/A

#N/A

#N/A

Funds From Operations

941.08

808.13

799.52

0.00

0.00

#N/A

1398.519

1354.317

#N/A

#N/A

#N/A
#N/A

Extraordinary Items
Net Cash From Operations
Disposal of Fixed Assets
Decrease In Investments

#N/A

#N/A

Capital Expenditures

1125.389

881.64

Net Cash From Investing

5407.053

4216.496

Long Term Borrowings

#N/A

5.808
#N/A

5,248.47

3,123.26

#N/A

Net Proceeds From Sale/Issue of Com & Pref

#N/A

58.26

#N/A

Inc(Dec) In Short Term Borrowings

-607.92

-92.93

#N/A

Cash Dividends Paid - Total

211.72

137.62

49.40

Reduction In Long Term Debt

#N/A

#N/A

#N/A

Net Cash From Financing

4167.34

3051.871

Effect of Exchange Rate On Cash

#N/A

#N/A

#N/A
#N/A

Inc(Dec) In Cash & Short Term Investments

158.81

189.69

#N/A

Exhibit 7
USD LIBOR Rates
1999-2007
8%

1-Month
3-Month

7%

6-Month
1-Year

6%

5%

4%

3%

2%

1%

Source: http://www.liborated.com/historic_libor_rates.asp
Jan-99
Mar
May
Jul
Sep
Nov
Jan-00
Mar
May
Jul
Sep
Nov
Jan-01
Mar
May
Jul
Sep
Nov
Jan-02
Mar
May
Jul
Sep
Nov
Jan-03
Mar
May
Jul
Sep
Nov
Jan-04
Mar
May
Jul
Sep
Nov
Jan-05
Mar
May
Jul
Sep
Nov
Jan-06
Mar
May
Jul
Sep
Nov
Jan-07
Mar
May
Jul
Sep
Nov

0%

22

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 8 Stock ownership of ACS as of December 31, 200732


Actividades de Construccin y Servicio ("ACS")
Public Stock Exchanges: Madrid Stock Exchange
Ticker Symbol: ACS
Shareholder
Corporacin Financiera Alba, SA
Corporacin Financiera Alcor, SA
Inversiones Vesan, SA
Iberostar Hoteles y Apartamentos, SL
Public Float (Non-controlling Shareholders)
TOTAL

Interest %
20.0%
12.5%
11.0%
5.0%
51.5%
100.0%

Exhibit 9 Stock ownership of Skanska as of December 31, 2007


Skanska AB ("Skanska")
Public Stock Exchanges: Stockholm Stock Exchange
Ticker Symbol: SKA B
Shareholder
Industrivrden (Investment Company)
AMF Pension
Swedbank Robur fonder
SEB fonder
AFA Frsakring
Alecta
SHB/SPP fonder
State of New Jersey Pension Fund
AMF Pension fonder
Andra AP-fonden
Lansfrskringar fonder
Frsta AP - fonden
SHB Pensionsstitelse
Alpine fonder
Catella fonder
Public Float (Non-controlling Shareholders)
TOTAL

Voting Power % EquityInterest %


27.1%
8.0%
3.4%
5.0%
2.3%
3.4%
1.9%
2.8%
1.8%
2.7%
1.8%
2.6%
1.5%
2.2%
1.1%
1.7%
0.9%
1.4%
0.8%
1.2%
0.8%
1.2%
0.8%
1.2%
3.0%
1.1%
0.7%
1.0%
0.7%
1.0%
51.4%
63.5%
100.0%
100.0%

23

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 10
Autopista Central - Estimated Sources and Uses of Funds*
USD Millions

Sources
Public Bonds
Equity Capital
Subordinated Debt
Financial Revenue
Revenue from Tolls
Value Added Tax Credit
Total

$552
87
121
3
159
24
$946

Uses
Construction Costs
Cancellation of Bridge Loans
Operating Costs
Cash
Value Added Tax and Working Capital
Other
Total

$447
120
234
42
24
79
$946

*Company projections from 2003

Exhibit 11
Autopista Central - Details of Bond Issues
Issue

Placement
Date

Currency
1

Country
Interest
Where Issued Principal Amount Type

Interest
Rate

Tenor

A-1

15-Dec-03

UF

Chile

13,000,000

Fixed

6.223%

23 years2

A-2

15-Dec-03

UF1

Chile

500

Fixed

6.223%

23 years2

A-1

15-Dec-03

USD

USA

250,000,000

Fixed

5.300%

23 years3

UF stands for "Unidad de Fomento" and is an inflation indexed currency created by the Chilean
government. The currency'svalue increases with inflation and vice versa. On December 15, 2003
the UF/USD exhange rate was roughly 27.15 and the Chilean Peso (CLP) to UF exchange rate
was 16,941.34.

The UF denominated bonds were to pay interest from the period 15-June-2004 until 15-June-2010
upon which the bonds would then begin to pay both interest and principal payments according to a
prespecified amortization table.

The USD denominated bonds were to pay interest from the period 15-June-2004 until 15-June-2007
upon which the bonds would then begin to pay both interest and a pre-specified commission to
bondholders. Starting on 15-June-2010, the bonds would pay interest plus principal payments
according to a prespecified amortization table.

24

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 12

20,000

800

19,500

700

19,000

600

18,500

500

18,000

400

17,500

300

17,000

200

16,500

100

16,000

Jan-02

May-03

Source: Central Bank of Chile

Date CLP/USD CLP/UF


Jan-02
651.67 16,262.66
Feb-02
678.63 16,226.45
Mar-02
668.29 16,202.29
Apr-02
657.11 16,197.66
May-02
646.97 16,257.01
Jun-02
658.62 16,326.94
Jul-02
698.40 16,355.74
Aug-02
704.66 16,347.96
Sep-02
714.95 16,392.22
Oct-02
745.30 16,457.22
Nov-02
726.83 16,572.44
Dec-02
701.17 16,716.02
Jan-03
718.39 16,743.58
Feb-03
733.64 16,689.55
Mar-03
749.42 16,684.20
Apr-03
726.49 16,787.92
May-03
702.38 16,970.27
Jun-03
709.59 17,011.71
Jul-03
695.99 16,957.41
Aug-03
708.47 16,939.29
Sep-03
695.59 16,926.72
Oct-03
657.24 16,947.16
Nov-03
625.79 16,981.34
Dec-03
618.38 16,965.17

Sep-04
CLP/UF

Feb-06

CLP / USD

CLP / UF

Chilean Peso (CLP) and Unidad de Fomento (UF)


Exchange Rates 2002 - 2007

Jun-07

CLP/USD

Date CLP/USD CLP/UF


Jan-04
585.57 16,918.36
Feb-04
578.64 16,867.61
Mar-04
585.53 16,830.11
Apr-04
609.92 16,820.82
May-04
623.65 16,870.13
Jun-04
643.70 16,870.13
Jul-04
630.75 17,017.78
Aug-04
641.59 17,090.98
Sep-04
628.57 17,133.97
Oct-04
606.63 17,193.07
Nov-04
611.50 17,224.15
Dec-04
583.85 17,266.48
Jan-05
571.46 17,318.73
Feb-05
582.57 17,280.66
Mar-05
582.70 17,225.78
Apr-05
585.68 17,198.23
May-05
580.18 17,269.38
Jun-05
580.18 17,412.32
Jul-05
581.93 17,491.00
Aug-05
559.79 17,556.90
Sep-05
539.57 17,653.18
Oct-05
528.03 17,719.33
Nov-05
544.52 17,864.89
Dec-05
514.85 17,976.45

Date CLP/USD CLP/UF


Jan-06
520.51 17,973.65
Feb-06
528.36 17,924.37
Mar-06
517.48 17,923.27
Apr-06
524.34 17,915.09
May-06
514.70 17,989.20
Jun-06
530.76 18,098.07
Jul-06
537.72 18,152.61
Aug-06
542.69 18,243.07
Sep-06
538.27 18,243.07
Oct-06
532.46 18,402.99
Nov-06
525.79 18,417.70
Dec-06
526.21 18,377.16
Jan-07
532.05 18,335.20
Feb-07
544.61 18,339.32
Mar-07
539.42 18,383.35
Apr-07
538.87 18,371.78
May-07
526.09 18,416.12
Jun-07
525.11 18,517.75
Jul-07
527.30 18,627.89
Aug-07
524.00 18,782.07
Sep-07
523.00 18,978.97
Oct-07
511.00 19,185.94
Nov-07
493.50 19,398.81

25

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 13 Historical Long Term US Treasury Rates33 (derived from daily returns)
Average
Long
TermComposite

Treasury

(>10 yrs)

20-yrCMT

2005
2006
2007

4.57%
4.97%
4.87%

4.64%
5.00%
4.91%

Exhibit 14 Institutional Investor Credit Ratings34


Intervals
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07

U.S.
92.4
92.5
93.5
94.5
94.0
94.1

Chile
70.0
71.6
73.6
73.2
76.4
77.6

Exhibit 15 Betas of Comparable Construction and Infrastructure Development Companies35


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

26

Exhibit 16

Balance Sheet for Autopista Central


Chilean Pesos in Thousands, except per share
Historical Year Ending Dic 31
2006
2005
Cash
Accounts receivables, net
Other current assets
Total Current Assets:
PP&E, net
Other long-term assets
Total Assets:
Accounts payable
Other current liabilities
Total Current Liabilities:
Revolver
Other long term liabilities
Long-term debt
Total Liabilities:
Total equity
Total Liabilities and Equity:

NOTE: 2007 Year-End Figures are Estimates

2007

21,574,842.0
12,691,032.0
13,759,840.0
48,025,714.0

466,396.0
17,703,290.0
23,075,791.0
41,245,477.0

8,493,630.0
23,354,253.0
27,765,363.0
59,613,246.0

474,795,260.0
39,783,603.0
$562,604,577.0

518,709,502.0
53,418,701.0
$613,373,680.0

556,005,309.0
69,604,954.0
$685,223,509.0

16,556,239.0
7,352,482.0
23,908,721.0

7,312,103.0
5,182,344.0
12,494,447.0

4,351,186.0
8,770,711.0
13,121,897.0

0.0
71,151,010.0
369,737,551.0
464,797,282.0

0.0
130,984,518.0
373,110,826.0
516,589,791.0

0.0
139,163,202.0
416,284,512.0
568,569,611.0

97,807,295.0

96,783,889.0

116,653,898.0

$562,604,577.0

$613,373,680.0

$685,223,509.0

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 16 (Continued)
Income Statement for Autopista Central
Chilean Pesos in Thousands, except per share
Historical Year Ending Dic 31
2005
2006
Sales
Cost of sales (excluding depreciation)
Gross Profit
SG&A expenses (excluding amortization)
Other operating (income) / expense
EBITDA
Depreciation
Amortization
EBIT

2007

2008

2009

2010

2011

2012

$44,516,120.0
$14,329,000.0
$30,187,120.0

$49,168,387.0
$8,102,100.0
$41,066,287.0

$66,914,030.0
$8,682,601.0
$58,231,429.0

$78,757,813.3
12,995,566.7
$65,762,246.6

$92,697,946.3
18,539,589.3
74,158,357.0

$109,105,482.8
21,821,096.6
87,284,386.2

$123,725,617.4
24,745,123.5
98,980,494.0

$140,304,850.2
28,060,970.0
112,243,880.1

$19,650,379.0
($27,102,441.0)
$37,639,182.0

$12,743,091.0
$25,342,512.0
$2,980,684.0

$12,137,881.0
$16,710,461.0
$29,383,087.0

13,388,828.3
26,106,838.0
$26,266,580.3

15,758,650.9
26,106,838.0
$32,292,868.1

18,547,932.1
26,106,838.0
$42,629,616.1

21,033,355.0
26,106,838.0
$51,840,301.0

23,851,824.5
26,106,838.0
$62,285,217.6

$8,356,710.0
$0.0
$29,282,463.0

$10,132,759.0
$0.0
($7,152,075.0)

$12,580,906.0
$0.0
$16,802,181.0

$14,176,406.4

16,268,971.1

18,658,171.0

20,602,243.3

22,732,300.8

$12,090,173.9

$16,023,897.1

$23,971,445.1

$31,238,057.7

$39,552,916.8

Income Statement for Autopista Central


Chilean Pesos in Thousands, except per share

Sales
Cost of sales (excluding depreciation)
Gross Profit
SG&A expenses (excluding amortization)
Other operating (income) / expense
EBITDA
Depreciation
Amortization
EBIT

2013

2014

2015

2016

2017

2018

2019

2020

$159,105,700.1
31,821,140.0
127,284,560.1

$180,425,863.9
36,085,172.8
144,340,691.1

$204,602,929.7
40,920,585.9
163,682,343.7

$214,833,076.2
42,966,615.2
171,866,460.9

$225,574,730.0
45,114,946.0
180,459,784.0

$236,853,466.5
47,370,693.3
189,482,773.2

$248,696,139.8
49,739,228.0
198,956,911.8

$261,130,946.8
52,226,189.4
208,904,757.4

27,047,969.0
26,106,838.0
$74,129,753.1

30,672,396.9
26,106,838.0
$87,561,456.3

34,782,498.0
26,106,838.0
$102,793,007.7

36,521,622.9
26,106,838.0
$109,238,000.0

38,347,704.1
26,106,838.0
$116,005,241.9

40,265,089.3
26,106,838.0
$123,110,845.9

42,278,343.8
26,106,838.0
$130,571,730.1

44,392,261.0
26,106,838.0
$138,405,658.5

25,063,279.9

27,610,780.2

30,390,974.4

30,944,890.1

31,478,220.0

31,987,520.7

32,469,055.9

32,918,775.8

$49,066,473.1

$59,950,676.0

$72,402,033.3

$78,293,109.9

$84,527,021.8

$91,123,325.2

$98,102,674.2

$105,486,882.6

28

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 16 (Continued)
Income Statement for Autopista Central
Chilean Pesos in Thousands, except per share

2021

2022

2023

2024

2025

2026

2027

2028

Sales
Cost of sales (excluding depreciation)
Gross Profit

$274,187,494.1
54,837,498.8
219,349,995.3

$287,896,868.8
57,579,373.8
230,317,495.1

$302,291,712.3
60,458,342.5
241,833,369.8

$317,406,297.9
63,481,259.6
253,925,038.3

$333,276,612.8
66,655,322.6
266,621,290.2

$349,940,443.4
69,988,088.7
279,952,354.7

$367,437,465.6
73,487,493.1
293,949,972.5

$385,809,338.9
77,161,867.8
308,647,471.1

SG&A expenses (excluding amortization)


Other operating (income) / expense
EBITDA

46,611,874.0
26,106,838.0
$146,631,283.3

48,942,467.7
26,106,838.0
$155,268,189.4

51,389,591.1
26,106,838.0
$164,336,940.7

53,959,070.6
26,106,838.0
$173,859,129.7

56,657,024.2
26,106,838.0
$183,857,428.1

59,489,875.4
26,106,838.0
$194,355,641.4

62,464,369.2
26,106,838.0
$205,378,765.3

65,587,587.6
26,106,838.0
$216,953,045.5

33,332,295.1

33,704,869.4

34,031,370.3

34,306,259.1

34,523,558.5

34,676,822.1

34,759,103.1

34,762,920.3

$113,298,988.2

$121,563,320.0

$130,305,570.4

$139,552,870.5

$149,333,869.6

$159,678,819.3

$170,619,662.2

$182,190,125.2

2029

2030

Sales
Cost of sales (excluding depreciation)
Gross Profit

$405,099,805.8
81,019,961.2
324,079,844.7

$425,354,796.1
85,070,959.2
340,283,836.9

SG&A expenses (excluding amortization)


Other operating (income) / expense
EBITDA

68,866,967.0
26,106,838.0
$229,106,039.7

72,310,315.3
26,106,838.0
$241,866,683.6

34,680,221.3

34,502,345.2

$194,425,818.3

$207,364,338.3

Depreciation
Amortization
EBIT

Income Statement for Autopista Central


Chilean Pesos in Thousands, except per share

Depreciation
Amortization
EBIT

29

Autopista Central, SA: The Valuation of a Toll Road Project in Chile

FUQ-04-2010

Exhibit 16 (Continued)
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

30

Exhibit 17 Assumptions Used in the Autopista Central Financial Projections of Manuel Flores

Revenues: 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 assets control is returned to the local
government.

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.

ENDNOTES
1

Chile: 2008 Annual Country Report, The Economist Intelligence Unit Limited, London, pps 4-5.
Ibid. p. 137.
3 1985 Santiago Earthquake. http://en.wikipedia.org/wiki/1985_Santiago_earthquake
4 Ibid. p. 138.
5 2007 Autopista Central Annual Report. p. 137.
6 2002 Grupo ACS Annual Report, p. 78.
7 2006 Grupo ACS Annual Report, p. i-ii.
8 Skanska AB company website; http://www.skanska.com
9 2006 Skanska AB Annual Report, p. i.
10 2007 Skanska AB Annual Report, p. 1.
11 Abertis. http://en.wikipedia.org/wiki/Abertis
12 Abertis Investor Presentation (http://www.abertis.com), December 19, 2008, p. 4.
13 Ibid. p. 137.
14 http://financialranks.com/?p=69
15 Banco Santander Chile Corporate Relations Website http://phx.corporate-ir.net/phoenix.zhtml?c=71614&p=irol-IRHome
16 Santander Asset Management Website, http://www.santanderam.co.uk
17 Aswath Damodaran, Measuring Company Exposure to Country Risk: Theory and Practice, http://pages.stern.nyu.edu/~adamodar/,
The Stern School of Business, New York University.
18 Aswath Damodaran, Country Default Spreads and Risk Premiums, http://pages.stern.nyu.edu/~adamodar/, The Stern School of
Business, New York University.
19 C.B. Erb, C.R. Harvey, and T.E. Viskanta, Expected Returns and Volatility in 135 Countries, the Journal of Portfolio Management,
1995.
20 Institutional Investor Magazine. http://www.iimagazine.com/
21 Ibid. p. 239.
22 http://www.moodys.com/cust/default.asp and http://www.standardandpoors.com/home/en/us .
23 John R. Graham and Campbell R. Harvey, The Equity Risk Premium in January 2007: Evidence from the Global CFO Outlook
Survey. Duke University, Durham, NC USA.
24 2001 research presentation prepared for Autopista Central by the traffic consulting firm Steer Davies Gleave.
25 Proexport Colombia , Inteligencia de Mercados, 1999.
26 The Chilean Copper Commission, Mercado Internacional del Hierro y el Acero de 005/2008, Santiago, Chile. 2008.
27 Case writers estimates.
28 Ibid. p. ii.
29 Ibid. p. 160.
30 Ibid. p. 130.
31 ACS group website; http://www.grupoacs.com/index.php/en
32 Ibid. p. 131.
33 The US Treasury, http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/ltcompositeindex_historical.shtml
34 Institutional Investor. Historic database of ratings maintained by Prof. Campbell R. Harvey.
35 Data for calculations obtained from Thomson OneBanker and Yahoo! Finance.
2