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Refinancing the Western Harbour Crossing, Hong Kong  
 
Product Ref: 07/331C Company: Western Harbour Tunnel Company Limited

Product Type: Case Industry: Real Estate
Transportation

Related Product(s): Teaching Note
This case deals with the operational phase of a privately operated urban infrastructure project, Hong Kong's Western Harbour Crossing. This is a tolled road tunnel from West Kowloon to Sai Ying Pun on Hong Kong Island, developed as part of the prestigious Airport Core Program supporting the new Hong Kong Airport development in the early to mid-1990s. The tunnel opened for business in 1997 and has underperformed financially since then. This case explores the hypothetical purchase of the tunnel as an infrastructure portfolio asset by a prominent bank acting for a private equity group. The bank is also interested in providing long-term debt financing on a non-recourse/limited recourse basis to the potential purchasers. A case analysis requires revisiting the economics of the project, valuation of the tunnel as a going venture and financing the purchase, and discussion of the merits of investing in it as a portfolio decision. This case considers two corporate/project finance activities. First, as a fundamental capital budgeting function it considers valuation of the Western Harbour Crossing as a going concern relative to its historical cost (ˇ§book valueˇ¨) in order to highlight the problems associated with sunk costs and irreversibility in underperforming real fixed assets structured as project-financed ventures. Secondly, it outlines the potential purchaser's financing decision and the approach that banks take in syndicating very large financial commitments to very risky projects.
Functional Area : Finance & Investments

Issues: Corporate finance, project finance, valuation
Length: Text: 7 pages
Exhibits: 30 pages
Country: Hong Kong SAR

Pub. Year: 2007 Level of Difficulty: 2
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
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