Capital structure optimization for build-operate- transfer (BOT) projects using a stochastic and multi-objective approach

Sungmin Yun, Seung Heon Han, Hyoungkwan Kim, Jong Ho Ock

Research output: Contribution to journalArticle

28 Citations (Scopus)

Abstract

Private financing has long been recognized as playing an important role in providing public infrastructure facilities worldwide. Private investors-operators, however, are often exposed to the financial risk of low profitability due to the inaccurate forecast of facility demand, operating income, and maintenance costs. From the operator's perspective, a sound and thorough financial feasibility study is required to establish the appropriate capital structure of a project. To this end, operators are likely to reduce the equity amount to minimize the level of risk exposures, whereas creditors or lenders continue to raise it in an attempt to secure a decent level of financial responsibility from the operators. This paper presents an optimized capital structure model for both creditors and operators to reach an agreement for a balanced structure that synchronizes both profitability and repayment capacity. The model is developed with the use of Monte Carlo simulation and a multi-objective generic algorithm (GA) for drawing an optimal level of equity ratio. Results of a case study on a railway project show that the proposed model provides a proper range of capital structure for privately financed infrastructure projects while accounting for the project-specific risks under variable conditions.

Original languageEnglish
Pages (from-to)777-790
Number of pages14
JournalCanadian Journal of Civil Engineering
Volume36
Issue number5
DOIs
Publication statusPublished - 2009 May 1

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All Science Journal Classification (ASJC) codes

  • Civil and Structural Engineering
  • Environmental Science(all)

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