Western Harbour Crossing

2670 Words Jun 25th, 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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Due to the limited information provided in the case, we have had to make some assumptions and look for external data to obtain the necessary figures to calculate the unlevered cost of equity. In principle, given that we are valuing the business in Hong Kong dollars, we need to use a Hong Kong risk free rate and Hong Kong market risk premium. However, as we do not have access to Betas of comparable Hong Kong businesses, we have used the MSCI World Index market premium and global unlevered Barra Betas for the infrastructure industry.

Key Assumptions • We have used the yield in November 2006 of the 10 year Hong Kong government bond maturing in 2015 as provided by Bloomberg • The yield was 4. 5% MRP Unlevered Beta • Using…