U.S. Bank of Washington & Redhook Ale Brewery Co

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 Albán 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, Albán and Sandoval expressed considerable interest in jointly buying ACS’ stake in a 61 kilometer toll-road that the firm had constructed and was now co-operating 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, Albán, 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 firm’s CEO, Florentino Pérez, as soon as possible. Regardless of Pérez’s and the Board’s 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 project’s 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. Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010

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 . 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 Spanish-imposed 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 Chile’s 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 Chile’s 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 1900’s 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 country’s 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 country’s 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

2 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010 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.

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 government’s 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 1980’s 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 Pinochet’s 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 Concertación or “The Agreement”1.

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 country’s GDP decreased in 2006 mainly due to a one month strike at the world’s largest copper mine (Chile is the world’s 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 Chile’s gas supplies by its neighbor, Argentina. On the supply

3 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010 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.

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 BCC’s 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 country’s 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, Valparaíso and Concepción. 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

4 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010 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. Chile’s sustained economic prosperity has enabled the city to become one of Latin America’s 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 Chile’s 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 city’s 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 city’s international airport.

In addition to highways as a means of mobilization, Santiago has South America’s most extensive subway system. In February of 2007, Santiago’s much touted TranSantiago public

5 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010 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. TranSantiago’s 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 TranSantiago’s 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 Chile’s 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.

The concept for Autopista Central, or “Central Highway” in Spanish, was first devised in 1995 as part of the country’s 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 Santiago’s 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.

6 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010

Autopista Central was formed and is controlled by a group of construction and project developers including the Spanish company Actividades de Construcción 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 company’s 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.

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)6. 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 firm’s 2007 annual revenues to be on the order of $31 billion (€ 21 billion) (see Exhibit 6 for historical financials of ACS).

The company’s CEO was the well-known Spanish businessman Florentino Pérez. Mr. Pérez 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 world’s most elite football players to the club. ACS’s 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 Skånska Cementgjuteriet in the year in 1887 in the city of Malmö, Sweden. The company initially only produced concrete products but quickly expanded into the construction industry and is credited with building many of Sweden’s 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 Skanska’s 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 income.10 In November of 2007 the company’s market capitalization was $8.0 billion (SEK 51.1 billion).

Buyers: Abertis Infraestructuras, SA (Abertis)

Headquarted in Barcelona, Abertis specializes in the management and operation of toll roads and airports. The company’s 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 region 13, 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 world’s 12th largest bank as measured by total market capitalization.14 The bank’s head office is located in Santander, Spain but its shares

8 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010 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 bank’s 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 Santander’s 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 shareholder’s equity. Santander established a presence in Chile in 1982 when it acquired Banco Español 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 Santander’s Asset Management group and has been in operation since 2004. SPE specializes in infrastructure funds and fund of 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 2’s 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 project’s 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 road’s

9 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010 revenue, and the local bond market’s 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 Central’s 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.

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 road’s 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 consortium’s concession with the government would end in 23 years upon which the owners would liquidate any remaining owner’s 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 project’s 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 Damodaran’s 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 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 University’s 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

11 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010 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 (β) 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 project’s incorporation or lack of certain risk mitigating factors (see the Erb, Harvey, Viskanta Cost of Capital Calculator in the accompanying Microsoft Excel spreadsheet <>). 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.

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 government’s policies. This increases the quality of socioeconomic conditions and consequently the country’s 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

12 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010 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 Chile’s 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

In mid-2007, Autopista Central’s credit rating was raised by Standard & Poor’s (from BBB- “stable” to BBB- “positive”) and Moody’s (from Baa3 to Baa2). The rating agencies initiated the upgrades citing positive upsides for the project’s revenues, the successful implementation of the toll road’s electronic tolling system, and a sound financial position.21 The project’s rating was good but still lower than Chile’s sovereign credit rating which stood at A and A2 as rated by Standard & Poor’s and Moody’s, 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:

 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 company’s products and services include congestion charging, truck-tolling, 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 post-completion 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 consortium’s 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 firm’s inflows with its outflows.

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 player’s strategic interests, and other factors mentioned in the case, how much should Flores ask Abertis and Santander for ACS’ stake in Autopista Central?

EXHIBITS

Exhibit 1 Map of Chile28

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

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

Exhibit 4a Stock ownership of the Autopista Central consortium as of December 31, 200730

Sociedad Concesionaria Autopista Central, SA ("Autopista Central")

Shareholder No. of Shares Interest % Inversora de Infraestructuras, SL 14,500,000 25.00% Skanska Kommersiell Utveckling Norden, AB 14,198,400 24.48% Inversiones Nocedal, SA 13,340,000 23.00% Skanska Infrastructure Development (Chile), SA 13,641,600 23.52% Empresa Constructora Belfi, SA 1,160,000 2.00% Empresa Constructora Brotec, SA 1,160,000 2.00% TOTAL 58,000,000 100.00%

Exhibit 4b Graphical representation of the ultimate ownership of Autopista Central as of December 31, 2007

ACS Skanska Empresa Empresa Constructora Constructora Belfi Brotec 100.0% 100.0% 100.0%

Inversora de Inversiones Skanska Kraft Infraestructura Nocedal s 100.0% 100.0%

Skanska Skanska Kommersiell Infrastructure Utveckling Development Norden (Chile) 25.0% 23.0% 24.5% 23.5% 2.0 2.0 % %

Sociedad Concesionaria Autopista Central

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.

Exhibit 6 ACS: 3-Yr Historical Financials Source: ThomsonFinancial Scaling Factor : 1000000 EUR Currency: EUR 3 YR BALANCE SHEET 12/ 31/ 06 12/ 31/ 05 12/ 31/ 04

ASSETS Cash And ST Investments 2,807.58 2,045.28 1,590.15 Receivables (Net) 6,487.66 5,541.52 5,176.53 Total Inventories 738.26 553.56 403.56 O ther Current Assets 0.00 0.00 25.35 Current Assets - Total 10,078.01 8,176.75 7,195.59 O ther 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 EQUITY 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 Income Taxes Payable 908.21 715.02 # N/ A O ther 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 O ther Liabilities 114.48 135.46 183.18 Total Liabilities 21,492.35 14,496.78 10,235.20

Shareholders' Equity Minority Interest 140.67 154.61 119.10 Preferred Stock 0.00 0.00 0.00 Common Equity 3,115.69 2,480.91 2,070.30 Retained Earnings 2,352.14 1,380.41 748.20 Total Liabilities & Shareholders' Equity 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 280.91 230.14 315.44 Gross Income 1,864.11 1,782.27 1,458.64 Selling, General & Admin Expenses # N/ A # N/ A # N/ A O perating Expenses - Total 13,834.95 11,744.11 10,705.74 O perating Income 232.23 369.78 254.92 Non-O perating Interest Income 186.35 83.23 64.87 Earnings Before Interest And Taxes (EBIT) 2,057.38 1,003.16 773.54 Interest Expense O n Debt 413.01 198.85 150.07 Pretax Income 1,644.38 804.31 623.47 IncomeTaxes 370.96 171.33 145.98 Minority Interest 23.32 24.32 17.10 Equity In Earnings # N/ A # N/ A # N/ A Net Income Before Extra Items/ Preferred Div 1,250.09 608.66 460.39 Extr Items & Gain(Loss) Sale of Assets 0.00 0.00 0.00 Net Income Before Preferred Dividends 1,250.09 608.66 460.39 Preferred Dividend Requirements 0.00 0.00 0.00 22 Net Income Available to Common 1,250.09 608.66 460.39 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010

Exhibit 6 (Continued)

3 YR CASH FLOW STATEMENT 12/ 31/ 06 12/ 31/ 05 12/ 31/ 04

Net Income / Starting Line 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 O perations 941.08 808.13 799.52 Extraordinary Items 0.00 0.00 # N/ A Net Cash From O perations 1398.519 1354.317 # N/ A Disposal of Fixed Assets # N/ A # N/ A # N/ A Decrease In Investments # N/ A # N/ A # N/ A Capital Expenditures 1125.389 881.64 5.808 Net Cash From Investing 5407.053 4216.496 # N/ A Long Term Borrowings 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 # N/ A Effect of Exchange Rate O n Cash # 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

7% 3-Month 6-Month

6% 1-Year

Source: http:/ / www.liborated.com/ historic_libor_rates.asp 0% 23 l l l l l l l l l r r r r r r r r r y y y y y y y y y v v v v v v v v v 9 0 1 2 3 4 5 6 7 p p p p p p p p p u u u u u u u u u a a a a a a a a a a a a a a a a a a 9 e 0 e 0 e 0 e 0 e 0 e 0 e 0 e 0 e o o o o o o o o o J J J J J J J J J ------S S S S S S S S S M M M M M M M M M M M M M M M M M M N N N N N N N N N n n n n n n n n n a a a a a a a a a J J J J J J J J J 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 Construcción y Servicio ("ACS") Public Stock Exchanges: Madrid Stock Exchange Ticker Symbol: ACS

Shareholder Interest % Corporación Financiera Alba, SA 20.0% Corporación Financiera Alcor, SA 12.5% Inversiones Vesan, SA 11.0% Iberostar Hoteles y Apartamentos, SL 5.0% Public Float (Non-controlling Shareholders) 51.5% TOTAL 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 Voting Power % EquityInterest % Industrivärden (Investment Company) 27.1% 8.0% AMF Pension 3.4% 5.0% Swedbank Robur fonder 2.3% 3.4% SEB fonder 1.9% 2.8% AFA Försakring 1.8% 2.7% Alecta 1.8% 2.6% SHB/ SPP fonder 1.5% 2.2% State of New Jersey Pension Fund 1.1% 1.7% AMF Pension fonder 0.9% 1.4% Andra AP-fonden 0.8% 1.2% Lansförsäkringar fonder 0.8% 1.2% Första AP - fonden 0.8% 1.2% SHB Pensionsstitelse 3.0% 1.1% Alpine fonder 0.7% 1.0% Catella fonder 0.7% 1.0% Public Float (Non-controlling Shareholders) 51.4% 63.5% TOTAL 100.0% 100.0%

Exhibit 10 Autopista Central - Estimated Sources and Uses of Funds* USD Millions Sources Uses Public Bonds $552 Construction Costs $447 Equity Capital 87 Cancellation of Bridge Loans 120 Subordinated Debt 121 Operating Costs 234 Financial Revenue 3 Cash 42 Revenue from Tolls 159 Value Added Tax and Working Capital 24 Value Added Tax Credit 24 Other 79 Total $946 Total $946 *Company projections from 2003

Exhibit 11

Autopista Central - Details of Bond Issues Placement Country Interest Interest Issue Date Currency Where Issued Principal Amount Type Rate Tenor A-1 15-Dec-03 UF1 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

1 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. 2 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. 3 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.

Exhibit 12 Chilean Peso (CLP) and Unidad de Fomento (UF) Exchange Rates 2002 - 2007 20,000 800

19,500 700

19,000 600

18,500 500 D F S U U

18,000 400 /

P P L L C 17,500 300 C

17,000 200

16,500 100

16,000 0 Jan-02 May-03 Sep-04 Feb-06 Jun-07

Source: Central Bank of Chile CLP/UF CLP/USD

D ate CLP/ USD CLP/ UF D ate CLP/ USD CLP/ UF D ate CLP/ USD CLP/ UF Jan-02 651.67 16,262.66 Jan-04 585.57 16,918.36 Jan-06 520.51 17,973.65 Feb-02 678.63 16,226.45 Feb-04 578.64 16,867.61 Feb-06 528.36 17,924.37 Mar-02 668.29 16,202.29 Mar-04 585.53 16,830.11 Mar-06 517.48 17,923.27 Apr-02 657.11 16,197.66 Apr-04 609.92 16,820.82 Apr-06 524.34 17,915.09 May-02 646.97 16,257.01 May-04 623.65 16,870.13 May-06 514.70 17,989.20 Jun-02 658.62 16,326.94 Jun-04 643.70 16,870.13 Jun-06 530.76 18,098.07 Jul-02 698.40 16,355.74 Jul-04 630.75 17,017.78 Jul-06 537.72 18,152.61 Aug-02 704.66 16,347.96 Aug-04 641.59 17,090.98 Aug-06 542.69 18,243.07 Sep-02 714.95 16,392.22 Sep-04 628.57 17,133.97 Sep-06 538.27 18,243.07 Oct-02 745.30 16,457.22 Oct-04 606.63 17,193.07 Oct-06 532.46 18,402.99 Nov-02 726.83 16,572.44 Nov-04 611.50 17,224.15 Nov-06 525.79 18,417.70 Dec-02 701.17 16,716.02 Dec-04 583.85 17,266.48 Dec-06 526.21 18,377.16 Jan-03 718.39 16,743.58 Jan-05 571.46 17,318.73 Jan-07 532.05 18,335.20 Feb-03 733.64 16,689.55 Feb-05 582.57 17,280.66 Feb-07 544.61 18,339.32 Mar-03 749.42 16,684.20 Mar-05 582.70 17,225.78 Mar-07 539.42 18,383.35 Apr-03 726.49 16,787.92 Apr-05 585.68 17,198.23 Apr-07 538.87 18,371.78 May-03 702.38 16,970.27 May-05 580.18 17,269.38 May-07 526.09 18,416.12 Jun-03 709.59 17,011.71 Jun-05 580.18 17,412.32 Jun-07 525.11 18,517.75 Jul-03 695.99 16,957.41 Jul-05 581.93 17,491.00 Jul-07 527.30 18,627.89 Aug-03 708.47 16,939.29 Aug-05 559.79 17,556.90 Aug-07 524.00 18,782.07 26 Sep-03 695.59 16,926.72 Sep-05 539.57 17,653.18 Sep-07 523.00 18,978.97 Oct-03 657.24 16,947.16 Oct-05 528.03 17,719.33 Oct-07 511.00 19,185.94 Nov-03 625.79 16,981.34 Nov-05 544.52 17,864.89 Nov-07 493.50 19,398.81 Dec-03 618.38 16,965.17 Dec-05 514.85 17,976.45 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 Treasury Term Composite (>10 yrs) 20-yr CMT 2005 4.57% 4.64% 2006 4.97% 5.00% 2007 4.87% 4.91%

Exhibit 14 Institutional Investor Credit Ratings34

Intervals U.S. Chile Mar-05 92.4 70.0 Sep-05 92.5 71.6 Mar-06 93.5 73.6 Sep-06 94.5 73.2 Mar-07 94.0 76.4 Sep-07 94.1 77.6

Exhibit 15 Betas of Comparable Construction and Infrastructure Development Companies35

Weighted Stock Company Beta Weight Beta Market Atlantia SpA 0.768 21.9% 0.168 FTSEMIB Abertis Infraestructuras SA 0.878 20.8% 0.182 IBEX Transurban Group 0.710 13.4% 0.095 AS51 Groupe Eurotunnel SA 1.065 12.0% 0.128 CAC Brisa Auto-Estradas de Portugal SA 0.844 6.5% 0.055 PSI20 Macquarie Group Ltd 1.232 6.0% 0.074 AS51 ConnectEast Group 0.942 4.2% 0.039 AS51 Zhejiang Expressway Co Ltd 0.861 3.9% 0.034 HSI Macquarie Korea Infrastructure Fund 0.557 3.7% 0.021 KOSPI Jiangsu Expressway Co Ltd 0.829 3.4% 0.028 HSI Average 0.869 95.8% 0.824 27 Median 0.853 Exhibit 16 Balance Sheet for Autopista Central Chilean Pesos in Thousands, except per share

Historical Year Ending Dic 31 Historical Year Ending Dic 31 2005 2006 2007

Cash 21,574,842.0 466,396.0 8,493,630.0 Accounts receivables, net 12,691,032.0 17,703,290.0 23,354,253.0 Other current assets 13,759,840.0 23,075,791.0 27,765,363.0 Total Current Assets: 48,025,714.0 41,245,477.0 59,613,246.0

PP&E, net 474,795,260.0 518,709,502.0 556,005,309.0 Other long-term assets 39,783,603.0 53,418,701.0 69,604,954.0 Total Assets: $562,604,577.0 $613,373,680.0 $685,223,509.0

Accounts payable 16,556,239.0 7,312,103.0 4,351,186.0 Other current liabilities 7,352,482.0 5,182,344.0 8,770,711.0 Total Current Liabilities: 23,908,721.0 12,494,447.0 13,121,897.0

Revolver 0.0 0.0 0.0 Other long term liabilities 71,151,010.0 130,984,518.0 139,163,202.0 Long-term debt 369,737,551.0 373,110,826.0 416,284,512.0 Total Liabilities: 464,797,282.0 516,589,791.0 568,569,611.0

Total equity 97,807,295.0 96,783,889.0 116,653,898.0

Total Liabilities and Equity: $562,604,577.0 $613,373,680.0 $685,223,509.0

NOTE: 2007 Year-End Figures are Estimates 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 Historical Year Ending Dic 31 2005 2006 2007 2008 2009 2010 2011 2012

Sales $44,516,120.0 $49,168,387.0 $66,914,030.0 $78,757,813.3 $92,697,946.3 $109,105,482.8 $123,725,617.4 $140,304,850.2 Cost of sales (excluding depreciation) $14,329,000.0 $8,102,100.0 $8,682,601.0 12,995,566.7 18,539,589.3 21,821,096.6 24,745,123.5 28,060,970.0 Gross Profit $30,187,120.0 $41,066,287.0 $58,231,429.0 $65,762,246.6 74,158,357.0 87,284,386.2 98,980,494.0 112,243,880.1

SG&A expenses (excluding amortization) $19,650,379.0 $12,743,091.0 $12,137,881.0 13,388,828.3 15,758,650.9 18,547,932.1 21,033,355.0 23,851,824.5 Other operating (income) / expense ($27,102,441.0) $25,342,512.0 $16,710,461.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 EBITDA $37,639,182.0 $2,980,684.0 $29,383,087.0 $26,266,580.3 $32,292,868.1 $42,629,616.1 $51,840,301.0 $62,285,217.6

Depreciation $8,356,710.0 $10,132,759.0 $12,580,906.0 $14,176,406.4 16,268,971.1 18,658,171.0 20,602,243.3 22,732,300.8 Amortization $0.0 $0.0 $0.0 EBIT $29,282,463.0 ($7,152,075.0) $16,802,181.0 $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

2013 2014 2015 2016 2017 2018 2019 2020

Sales $159,105,700.1 $180,425,863.9 $204,602,929.7 $214,833,076.2 $225,574,730.0 $236,853,466.5 $248,696,139.8 $261,130,946.8 Cost of sales (excluding depreciation) 31,821,140.0 36,085,172.8 40,920,585.9 42,966,615.2 45,114,946.0 47,370,693.3 49,739,228.0 52,226,189.4 Gross Profit 127,284,560.1 144,340,691.1 163,682,343.7 171,866,460.9 180,459,784.0 189,482,773.2 198,956,911.8 208,904,757.4

SG&A expenses (excluding amortization) 27,047,969.0 30,672,396.9 34,782,498.0 36,521,622.9 38,347,704.1 40,265,089.3 42,278,343.8 44,392,261.0 Other operating (income) / expense 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 EBITDA $74,129,753.1 $87,561,456.3 $102,793,007.7 $109,238,000.0 $116,005,241.9 $123,110,845.9 $130,571,730.1 $138,405,658.5

Depreciation 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 Amortization EBIT $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

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

2021 2022 2023 2024 2025 2026 2027 2028

Sales $274,187,494.1 $287,896,868.8 $302,291,712.3 $317,406,297.9 $333,276,612.8 $349,940,443.4 $367,437,465.6 $385,809,338.9 Cost of sales (excluding depreciation) 54,837,498.8 57,579,373.8 60,458,342.5 63,481,259.6 66,655,322.6 69,988,088.7 73,487,493.1 77,161,867.8 Gross Profit 219,349,995.3 230,317,495.1 241,833,369.8 253,925,038.3 266,621,290.2 279,952,354.7 293,949,972.5 308,647,471.1

SG&A expenses (excluding amortization) 46,611,874.0 48,942,467.7 51,389,591.1 53,959,070.6 56,657,024.2 59,489,875.4 62,464,369.2 65,587,587.6 Other operating (income) / expense 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 26,106,838.0 EBITDA $146,631,283.3 $155,268,189.4 $164,336,940.7 $173,859,129.7 $183,857,428.1 $194,355,641.4 $205,378,765.3 $216,953,045.5

Depreciation 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 Amortization EBIT $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

Income Statement for Autopista Central Chilean Pesos in Thousands, except per share

2029 2030

Sales $405,099,805.8 $425,354,796.1 Cost of sales (excluding depreciation) 81,019,961.2 85,070,959.2 Gross Profit 324,079,844.7 340,283,836.9

SG&A expenses (excluding amortization) 68,866,967.0 72,310,315.3 Other operating (income) / expense 26,106,838.0 26,106,838.0 EBITDA $229,106,039.7 $241,866,683.6

Depreciation 34,680,221.3 34,502,345.2 Amortization EBIT $194,425,818.3 $207,364,338.3

Exhibit 16 (Continued)

Projected CAPEX, N et Changes in Working Capital, and N et Changes in O ther Assets and Liabilities for Autopista Central Chilean Pesos in Thousands, except per share

Change in Change in O ther Working Assets and Year CAPEX Capital Liabilities 2008 ($3,152,186.1) ($2,495,040.9) $2,782,329.9 2009 ($3,710,123.1) ($2,331,551.0) $2,893,623.1 2010 ($4,366,814.9) ($7,579,903.0) $3,009,368.0 2011 ($4,951,920.0) ($6,753,610.2) $3,129,742.8 2012 ($2,807,738.6) ($7,659,148.4) $3,254,932.5 2013 ($3,183,975.6) ($8,685,474.3) $3,385,129.8 2014 ($3,610,628.4) ($9,849,327.9) $3,520,535.0 2015 ($4,094,452.6) ($11,169,137.8) $3,661,356.4 2016 ($4,299,101.5) ($4,724,344.3) $3,807,810.6 2017 ($4,513,979.2) ($4,960,476.4) $3,960,123.0 2018 ($4,739,596.9) ($5,208,411.0) $4,118,528.0 2019 ($4,976,491.4) ($5,468,737.8) $4,283,269.1 2020 ($5,225,226.4) ($5,742,076.2) $4,454,599.8 2021 ($5,486,393.7) ($6,029,076.7) $4,632,783.8 2022 ($5,760,614.6) ($6,330,422.0) $4,818,095.2 2023 ($6,048,541.6) ($6,646,829.1) $5,010,819.0 2024 ($6,350,859.8) ($6,979,050.9) $5,211,251.8 2025 ($6,668,288.5) ($7,327,877.9) $5,419,701.8 2026 ($7,001,582.9) ($7,694,139.8) $5,636,489.9 2027 ($7,351,536.0) ($8,078,708.3) $5,861,949.5 2028 ($7,718,980.5) ($8,482,498.3) $6,096,427.5 2029 ($8,104,790.6) ($8,906,470.6) $6,340,284.6 2030 ($8,509,884.2) ($9,351,633.8) $6,593,896.0 31 Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010

32 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 asset’s 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. Autopista Central, SA: The Valuation of a Toll Road Project in Chile FUQ-04-2010

34 ENDNOTES 1 “Chile: 2008 Annual Country Report,” The Economist Intelligence Unit Limited, London, pps 4-5. 2 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.