Review into infrastructure fund return requirements through monetary policy rate changes
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School of Business |
Bachelor's thesis
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Authors
Date
2023
Department
Major/Subject
Mcode
Degree programme
Rahoitus
Language
en
Pages
3+31
Series
Abstract
Infrastructure assets, such as district heating and electricity distribution networks, have been traditionally mostly owned by states and municipalities, but are now increasingly privatized. While privatization may bring increased efficiency and new capital, infrastructure often involves natural monopolies that may lead to misuse of market power in higher charges and poorer service. Understanding the infrastructure fund return requirements would allow to gauge the value that these funds set to publicly owned infrastructure and could allow for improved decision making regarding privatization. The recent sharp change in monetary policy rates enable an experiment to regress valuations (through EV / EBITDA -multiples) against the policy base rates to shed light on the subject. However, using an M&A database Zephyr, only 277 infrastructure transactions with the necessary data were identified, from which no meaningful results could be derived. The empirical challenge is driven by various factors. First, EV / EBITDA is naturally highly fluctuating unless the target perimeters are highly similar, limiting a quantitative study. Second, the lack of data is natural due to companies considering both EV and EBITDA, the prerequisites of the chosen multiple, as sensitive information which they are incentivized to keep hidden. Consequently, appraisal of infrastructure privatizations remain hamstrung by the opacity of market dynamics, and suggests that future research may require alternative avenues.Description
Thesis advisor
Kokkonen, JoniKeywords
infrastructure funds, privatization, return requirements, base rates