Financial Limited-Recourse in Public-Private Partnership Projects and Its Implications: A Real Option Based Analysis

• Main Authors: Chen-Chiang Chang, 張鎮江
• Other Authors: S. Ping Ho
• Format: Others
• Language: en_US
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/18702670981458387300

碩士 === 國立臺灣大學 === 土木工程學研究所 === 96 === This study develops a real option based model for evaluating financial limited-recourse in public-private partnership project. First of all, this study investigates why the recourse is useful in differentiating the quality of PPP project. Moreover, what the relationship is between the characteristics of project and the recourse. Finally, proposes a scheme that can help the government screen the PPP sponsors. In this model, the recourse value can be priced by the difference between a contract with recourse and a non-recourse contract. We show that the recourse value is negatively correlated with the quality of PPP project. Therefore, with limited-recourse, low quality sponsors can be screen out more easily. The value of recourse depends on the volatility of the project’s net present value, the sponsor total asset, the concession periods, the fixed percentage of the project’s debt amount held by the public authority, the recovery position of the debt amount held by the project lender, and the relative size between the project and the sponsor. Using the Monte Carlo simulation, we demonstrate that a low quality sponsor, characterized by larger volatility of the project’s asset value, will bear higher cost due to the higher recourse value, which makes the low quality sponsor tend to stay away from the PPP project tendering. Therefore, we show that a proper use of financial limited-recourse may improve the phenomenon that “Bad money drives out good.”